Japan stocks mostly soar on US midterms but AI-related ones extend tumble

TOKYO, Nov 5 (Reuters) - Japanese stocks rallied on Thursday, buoyed by declines in crude oil after a Democratic sweep in US midterm elections weakened President Donald Trump's position and raised hopes for an end to the Iran war.

However, AI and chip shares extended sharp declines from Wednesday on bets that Democrats will slow the pace of AI data centre expansion. The tech selloff benefited sectors such as retail and real estate as investors rotated positions.

The broad Topix .TOPX rose 1.3% as of 0131 GMT, and was earlier up as much as 2.4%. Lower crude prices tend to support Japan Inc, because the resource-poor country imports almost all its energy needs, and mostly from the Middle East.

Meanwhile, the tech-heavy Nikkei .N225 slid 0.5%, weighed down by stocks such as chip equipment firms Advantest 6857.T and Tokyo Electron 8035.T, which plunged 10.3% and 8.6%, respectively.

"Funds that had previously been flowing into AI and semiconductors have shifted to other sectors," said Wataru Akiyama, an equities strategist at Nomura Securities.

"There is now a growing view that the Democrats' gains will lead to delays in data-centre plans, (meaning) the current pace of earnings growth may not be sustained," he said.

However, "given the strategic competition between the US and China, it is unlikely that the trend in data-centre construction will be reversed," he added.

The oversized drag from Japan's tech giants was clear: 168 of the Nikkei's 225 components were higher on Thursday, compared with 56 decliners and one that traded flat.

Twenty-five of the Tokyo Stock Exchange's 33 industry groupings rose, led by a 6.5% rally for real estate , a 5.4% rise for retail .IRETL.T and a 5.3% gain for pharma .IPHAM.T. Uniqlo-operator Fast Retailing 9983.T soared 7.9%.

Toyota 7201.T climbed 5.3% ahead of its earnings report, due during the afternoon trading session.

Sony 6758.T and Nintendo 7974.T will announce results after Thursday's close, and were up 6.6% and 4.6%, respectively.

Shipping .ISHIP.T was the worst-performing sector amid prospects for lower freight rates if the Middle East conflict eases.