* Chip-related shares underperform
* OSE jumps on news it and TSE eye merger talks
* High dividend yield stocks outperform
By Ayai Tomisawa and Antoni Slodkowski
TOKYO, March 10 (Reuters) - Japan's Nikkei average fell to a five-week intraday low on Thursday, breaking below a key support level after 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 Wall Street's semiconductor index fell 3 percent, hit by a weaker outlook from Texas Instruments .
With the settlement of Nikkei 225 futures and options on Friday, moves by commodity trading advisers in futures, which have sparked big swings in the benchmark recently, were again 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.
Defensive stocks with high dividend yields, such as utilities like Tokyo Electric Power , which added 0.5 percent to 2,154 yen, outperformed ahead of the March ex-dividend date.
By midafternoon, the benchmark Nikkei was down 1.4 percent, or 151.85 points, at 10,436.98 points. It extended losses in the afternoon session, at one point falling to a five-week intraday low and breaking below its 13-week moving day average, 10,463.79, a key support level, after data showed China ran a surprise trade deficit of $7.3 bln in February, triggering some jitters about the outlook for global growth.
The broader Topix index fell 1.4 percent to 931.03.
Tokyo Electron dropped 2.3 percent to 5,160 yen and Sumco declined 3 percent to 1,448 yen, in the wake of Texas Instruments' weaker outlook.
READY FOR ROLLOVER
"We're seeing increased volumes in June contracts in Nikkei futures, suggesting that rollover ahead of tomorrow's settlement of futures and options prices is almost completed," said Takashi Ushio, head of the investment strategy division at Marusan Securities.
"If China's February inflation data due tomorrow comes in line with the market's expectations and pre-announced protests in Saudi Arabia don't turn too violent, next week the market may be set for a rebound with many factors causing nervousness out of the way."
He also added that year-end window dressing by domestic institutional investors would have peaked by then, allowing for the Nikkei to make further advances.
Osaka Securities Exchange Co soared 7.3 percent to 462,000 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.
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 Gas adding 0.3 percent to 363 yen.
Morning 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. (Editing by Joseph Radford)