Japan's Nikkei ends lower as AI stock selloff, rising bond yields weigh

TOKYO, Sept. 1 (Reuters) - Japan's Nikkei share average closed lower on Tuesday, pressured by a sharp rise in bond yields that weighed on heavyweight technology stocks.

The tech-heavy Nikkei .N225 edged 0.2% lower to end the day at 66,215.34, after the benchmark flitted between losses and gains throughout the session.

The broader Topix .TOPX rose 0.6% to 4,181.86.

Both Japanese and U.S. government bond yields climbed to record highs on Tuesday as uncertainty in the Middle East kept oil prices elevated and fuelled expectations of further monetary tightening by the Bank of Japan and the Federal Reserve.

AI-related stocks were among the biggest losers, with heavyweight chipmaking equipment maker Tokyo Electron 8035.T falling 2.6% and exerting the largest drag in the Nikkei.

The biggest decliner in percentage terms was cable maker Furukawa Electric 5801.T, which sank 4%, while peer Fujikura 5803.T lost 3.7%.

"It appears that a sector rotation, albeit likely a short-term one, is currently taking place in the market," said Nomura Securities strategist Wataru Akiyama, pointing to auto shares as one of the beneficiaries.

"When looking at the Japanese stock market as a whole, I believe the underlying (bullish) trend remains firm."

Shares of Toyota 7203.T gained nearly 3% and Nissan 7201.T climbed 3.2%.

Of the index's 225 components, 170 rose versus 55 that fell.