Japan's Nikkei slumps over 3% as chipmakers, Middle East turmoil weigh

Japan Nilkei:  Japan's Nikkei share average dropped more than 3% on Friday to their lowest levels in more than two months as chip-related stocks tracked losses in Taiwanese chipmaker TSMC, while an escalation in the Middle East turmoil also dented risk appetite.

The Nikkei fell to 36,733.06, its lowest level since Feb. 8, before ending the morning session down 3.31% at 36,818.81. The benchmark index was on course to lose 6.8 per cent for the week, if losses hold.

The broader Topix lost 2.78 per cent to 2,603.07, and was set to post a 5.6% weekly loss.

"The Nikkei was weak as chip shares tanked after TSMC's earnings. And the index extended losses on the news about the Middle East turmoil," said Shuji Hosoi, senior strategist at Daiwa Securities.

Traders maintained a cautious stance after reports of a sharp escalation in Middle East hostilities. ABC News cited a U.S. official in reporting that Israeli missiles had hit a site in Iran, while Iran's Fars news agency said explosions were heard at an airport in the city of Isfahan.

Taipei-listed shares of TSMC fell around 6% on Friday following the company's first-quarter earnings report where it retained its capex and full-year revenue outlook and flagged only a gradual recovery for the chip sector.

Chip-making equipment maker Tokyo Electron tanked 7.76% to become the biggest drag on the Nikkei. Chip-testing equipment maker Advantest fell 5.49 per cent.

Shares of silicon wafer maker Shin-Etsu Chemical fell 5.52 per cent.

Uniqlo-brand store operator Fast Retailing lost 1.47 per cent.

"TSMC's earnings beat market expectations, but its outlook for the industry was dim," said Naoki Fujiwara, senior fund manager, Shinkin Asset Management.

Of the 225 components, 209 stocks fell, while 16 rose.

(Reporting by Junko Fujita; Editing by Sherry Jacob-Phillips)