Japan's Nikkei drops most in 3 weeks as chip stocks tumble

By Kevin Buckland

TOKYO, Oct 26 (Reuters) - Japan's Nikkei share average slumped to its worst day in three weeks on Thursday as chip-related stocks led a broad selloff amid rising long-term yields and a tumble in U.S. tech stocks overnight.

The Nikkei closed down 2.14% at 30,601.78, near the day's low. That was the weakest performance since Oct. 4, having snapped a two-day winning streak.

Of the equity benchmark's 225 components, 193 fell, while 30 rose, with two flat.

The broader Topix sank 1.34%, with an index of growth stocks sliding 1.62% and underperforming a 1.09% decline in value shares.

The Mothers index for startups slid 2.33%.

Japan stock declines followed sharp losses on Wall Street, with the S&P 500 sinking 1.4% and the tech-heavy Nasdaq < slumping 2.4%. The Philadelphia SE Semiconductor Index plunged 4.1%.

"Right now, the Nikkei is more tracking external factors, especially the U.S. market," said Kelvin Wong, a senior market analyst at Oanda, pointing to elevated correlation with the S&P 500 over the past four weeks.

The Nikkei's 200-day moving average of around 30,300 is a key level of support to keep an eye on, he added.

Tech took an outsized hit after shares in Google parent Alphabet fell on disappointing earnings, while a climb back toward 16-year peaks for long-term Treasury yields sapped overall risk appetite.

Japanese 10-year government bond yields hit a fresh decade high.

Chip-testing equipment maker Advantest led Nikkei decliners, dropping 6.87%. Chip-making machinery manufacturer Screen Holdings was next with a 5.61% retreat, followed by a 5.03% slide in bigger peer Tokyo Electron.

Electric machinery was the worst performer among the Tokyo Stock Exchange's 33 industry groups, declining 2.55%.

Machinery lost 2.17% and precision machinery fell 1.8%.

The interest rate-sensitive property sector also slumped 2.22%.

"It's looking pretty ugly out there," said Kyle Rodda, a senior financial markets analyst at Capital.com.

"Yields are strangling equities everywhere," he added. "Japan is a more pronounced case of this." (Reporting by Kevin Buckland; Editing by Varun H K and Sohini Goswami)