* Chip-related shares underperform
* OSE jumps on news it's eying merger talks with TSE
* Charts point to downside, but outlook blurry
By Ayai Tomisawa and Antoni Slodkowski
TOKYO, March 10 (Reuters) - Japan's Nikkei average fell to a five-week low on Thursday, breaking below a key support level after an overnight rise in oil prices and uncertainty about the Middle East sparked futures selling.
The charts are pointing to further losses for the market, but some analysts stressed that bargain hunters would buy on dips if any positive news emerges from the Middle East, leaving the near-term outlook blurry.
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 coming up on Friday, market players pointed to commodity trading advisers in futures, who have sparked big swings in the benchmark recently, as responsible for exaggerated losses -- the biggest on the day among Asian bourses.
"The situation in the middle east is unlikely to become clearer in the foreseeable future, so with an increasing number of investors turning away from riskier assets, the Nikkei will likely slide further next week," said Hiroyuki Fukunaga, chief executive of trading information provider Investrust.
The benchmark Nikkei ended the day down 1.5 percent, or 155.12 points, at 10,434.38. It fell to a five-week low, breaking below its 13-week moving average, a key support level, after data showed China ran a surprise trade deficit of $7.3 billion in February, triggering some jitters about the outlook for global growth and pushing Chinese stocks lower.
The broader Topix index fell 1.4 percent to 930.84.
Investrust's Fukunaga also said that any decisive break below immediate support at the Nikkei's year-to-date low of 10,237.92 may trigger further selling.
Defensive stocks with high dividend yields, including utilities such as Tokyo Electric Power which added 0.5 percent to 2,153 yen, outperformed ahead of the March ex-dividend date.
Tokyo Electron dropped 2.3 percent to 5,160 yen and Sumco declined 2.9 percent to 1,450 yen, in the wake of Texas Instruments' weaker outlook.
Oil rose on Thursday with U.S. crude near $105 a barrel and Brent above $116, after forces loyal to Libyan leader Muammar Gaddafi bombed oil industry infrastructure, inflicting what could be long-term damage on the country's exporting capacity.
READY FOR ROLLOVER
But some analysts said that, in the short term, the Nikkei may bounce back towards its 25-day moving average, which has now become immediate resistance at 10,626.86, as factors that fuelled its 13 percent rally since November -- excess liquidity and strong corporate performance -- were still in place.
"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 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 jumped 6.9 percent to 460,000 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 Nikkei was limited, the news could boost sentiment 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."
Volume was thin, with 1.95 billion shares changing hands on the Tokyo stock exchange's first section, below last week's average daily volume of 2.2 billion shares. Declining shares totalled 1,436, far outnumbering advancing shares at 158. (Editing by Edmund Klamann)