(Repeats to fix table format)
* Chip-related shares underperform
* OSE jumps on news it and TSE eye merger talks
* High dividend yield stocks outperform
By Ayai Tomisawa
TOKYO, March 10 (Reuters) - Japan's Nikkei average fell on Thursday, breaking below a key support level after further gains in oil prices sparked futures selling, while chip-related shares dropped after their U.S. counterparts tumbled overnight.
Chip-linked shares underperformed the overall market after the PHLX semiconductor index fell 3 percent, hit by a weaker outlook from Texas Instruments .
With the settlement of Nikkei 225 futures and options coming up on Friday, moves by commodity trading advisers in futures, which have sparked big swings in the benchmark recently, are also in focus.
"Futures selling was seen today, and high oil prices are likely to be the reason," said Yumi Nishimura, a senior market analyst at Daiwa Securities Capital Markets.
Oil rose on Thursday with U.S. crude near $105 and Brent above $116 a barrel, after forces loyal to Libyan leader Muammar Gaddafi bombed oil industry infrastructure, inflicting what could be longer-term damage on the country's exporting capacity.
Stocks with high dividend yields, such as utilities like Tokyo Electric Power , outperformed ahead of the March ex-dividend date.
At the midday break, the benchmark Nikkei was down 1.1 percent or 115.69 points at 10,473.81 points. The broader Topix index fell 1.3 percent to 932.11.
At one point, the Nikkei fell below its 13-week moving average of 10,464.17, a key support level. Analysts said the Nikkei may hover around this line for the rest of the day.
Tokyo Electron dropped 1.9 percent to 5,180 yen and Sumco fell 2.4 percent to 1,457 yen, in the wake of Texas Instruments' weaker outlook.
Osaka Securities Exchange Co jumped 8.3 percent to 466,000 yen. The bourse and the Tokyo Stock Exchange plan to start talks as early as this month about a possible business integration, a source familiar with the matter said on Thursday.
The Osaka exchange said in a statement that it could not confirm whether it was in merger talks with another exchange.
Market observers said that, although the immediate impact on the market was limited, sentiment should be positive in the long run.
"Given the merger talks between NYSE Euronext and Deutsche Boerse, this move should be taken positively if it's true," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
"Excluding a few stocks like Nintendo, the OSE does not have any appealing stocks for the cash market. If the OSE can focus on futures trade while the TSE could absorb the cash trade, there may be good synergies and they could efficiently reduce personnel levels and costs."
Stocks with high dividend yields outperformed, with Tokyo Electric gaining 0.1 percent to 2,146 yen and Tokyo Gas adding 0.3 percent to 363 yen.
Volume was thin, with 908 million shares changing hands on the Tokyo stock exchange's first section, which is set to post lower daily volume than last week's average daily volume of 2.2 billion shares. (Reporting by Ayai Tomisawa)