Nikkei share average: Japan's benchmark Nikkei index witnessed a decline on Monday as escalating violence in the Middle East and a sell-off on Wall Street dampened investor sentiment, leading to a broad-based selloff in equities.

The Nikkei closed down by 0.74 per cent at 39,232.80, although it managed to recover from earlier losses of up to 1.78 per cent. Similarly, the broader Topix slipped by 0.23 per cent.

The semiconductor sector mirrored losses seen in the US, with Japanese stocks tracking their American counterparts lower following reports that Beijing instructed China's major telecom carriers to reduce their reliance on foreign chips.

Additionally, disappointing domestic earnings contributed to the market downturn, with shares of drugmaker Astellas and department store operator Takashimaya witnessing significant declines.

The already cautious market sentiment was further exacerbated by an unprecedented attack by Iran on Israeli territory over the weekend. This heightened geopolitical tension added to the risk-off mood among investors, according to Kazuo Kamitani, an equities strategist at Nomura Securities.

Despite the current market turbulence, Kamitani highlighted a potential positive shift in the technical outlook for Japanese stocks. With the Nikkei's 25-day moving average expected to trend upwards from Tuesday, there is optimism for a reversal in fortunes.

Astellas emerged as the top decliner on the Nikkei, plunging nearly 8 per cent, while the pharmaceutical sector recorded a 1.86 per cent slide, positioning it at the bottom among the Tokyo Stock Exchange's industry groups.

In the semiconductor space, Lasertec led the losses with a 2.59 per cent decline, closely followed by Advantest, which dropped 1.31 per cent.

However, amidst the market downturn, certain sectors managed to gain ground. Shippers  and oil companies saw upticks in response to heightened tensions in the Middle East, rising by 2.41 per cent and 1.02 per cent, respectively.

The utilities sector emerged as the top performer, with Tokyo Electric Power Company leading the gains with a 5.83 per cent rally. This surge was fueled by positive developments toward the resumption of operations at its Kashiwazaki-Kariwa nuclear plant, the world's largest.

(With Reuters inputs.)