Japan's Nikkei hits two-month low after chip rout

Japan's Nikkei share average fell to close at a fresh two-month low on Wednesday, as investors sold off chip-linked shares ahead of major U.S. tech earnings, while renewed fighting in the Middle East dampened risk appetite.

Asian chipmakers have been highly volatile recently, as doubts over returns from AI companies' heavy spending emerge amid intensifying Chinese competition.

The tech-heavy Nikkei .N225 closed 1.49% lower at 61,434.19, after sinking as much as 3.07% earlier, extending the previous session's more-than 4% plunge. The gauge is down about 15% from a record high close hit last month.

"There was no fresh event that soured sentiment; the market is simply extending its recent trend," said Shingo Ide, chief equity strategist at the NLI Research Institute.

The broader Topix .TOPX rose 0.26% to 3,974.03.

Semiconductor equipment maker Screen Holdings 7735.T plunged 17.25%, its biggest percentage drop since January 2020. Memory chipmaker Kioxia 285A.T plummeted 13.85%, extending its losing streak to a fifth session and bringing its losses over the period to about 40%.

The Nikkei's loss came after South Korea's tech-heavy KOSPI .KS11 ended 6% lower in volatile trade and the U.S. Philadelphia semiconductor index .SOX fell nearly 4.5% overnight on Tuesday.

"Japanese stocks may not have fully completed their correction, but they had fallen to levels where the adjustment could have run its course. For markets such as the KOSPI, the correction may still have further to go," Ide said.

U.S. tech heavyweights Microsoft MSFT.O and Amazon AMZN.O are due to report their earnings this week.

Oil prices rose by about $3 a barrel after U.S. and Saudi Arabia attacked Iran-linked forces in Iraq. O/R