(Updates with closing prices, details, and adds analyst comment

in paragraph 11)

By Rocky Swift and Junko Fujita

TOKYO, July 17 (Reuters) - Japan's Nikkei tumbled into

correction territory on Friday, as a global rout in chipmakers

and an escalation in the Middle East conflict prompted investors

to shun risk assets.

The benchmark Nikkei 225 sank 4.03% to close lower

at 64,141.12, after falling as much as 6.18%. The index is now

down 11.3% from its all-time high close of 72,366.34 on June 25.

The broader Topix slipped 2.72% to 3,919.21.

The decline followed overnight losses in U.S. equities,

where technology stocks tumbled, while U.S. economic data showed

strength and corporate earnings season was robust. Hawkish

remarks from Federal Reserve officials on Thursday reinforced

expectations for further U.S. rate hikes.

The Philadelphia SE Semiconductor index tumbled 4.3%

overnight, while the U.S.-listed shares of South Korean

chipmaker SK Hynix plunged more than 13%.

With South Korea's market closed for a holiday, selling

pressure intensified on Japan's technology market, and notably

on Kioxia Holdings ( KXHCF ), said Daisuke Hashizume, a senior

strategist at Daiwa Securities.

"The long-term trend for AI and data centres is unchanged,

but right now investors are worried that memory chip prices can

rise sustainably," Hashizume added.

Geopolitical tensions also remained elevated, with U.S.

President Donald Trump threatening a broader escalation in

strikes on Iran.

Breadth was overwhelmingly negative, with 71 advancers in

the Nikkei 225 against 152 decliners and two unchanged.

Kioxia ( KXHCF ) was the index's biggest percentage loser, tumbling

16.1% for its steepest one-day decline since November 2025. It

was followed by Sumco ( SUMCF ), down 15.17%, and Screen Holdings ( DINRF )

, which lost 12.04%.

AI euphoria in Japan is encapsulated in the fortunes of

Kioxia ( KXHCF ), a once-struggling chipmaker whose market capitalisation

briefly surpassed that of Toyota last month. But its share price

has fallen more than 50% since then.

"I believe the market correction is dragging on as a

reaction to the sharp rise that preceded it," said Shoichi

Arisawa of Iwai Cosmo Securities. "That said, I don't think the

business environment surrounding AI and semiconductor companies,

or the current outlook for semiconductor demand, has changed."

Seven & I Holdings ( SVNDF ) was among the top gainers in

the Nikkei, rising 3.64% after the company said it was in talks

to buy a stake in Polish convenience store operator Zabka Group

.