TOKYO: Japan's Nikkei share average dropped on Monday to test a major support level from its 200-day moving average, as semiconductor stocks came under pressure tracking losses in their US peers due to profit-taking.

Sentiment was also hit by worries about the spread of highly contagious Delta variant of the coronavirus and the Tokyo 2020 Olympics likely worsening the health crisis and eroding public support for Prime Minister Yoshide Suga ahead of an election later this year.

By late afternoon trade, Nikkei share average fell 1.58% to 27,561.59, edging near last week's two-month low of 27,419.40.

It was risking a decisive break below its 200-day average, now at 27,672, for the first time since early last year.

Tokyo's Nikkei closes up more than 2.2%

"The 200-day average is an important technical level. A fall below that could possibly lead to a fall to around 25,500," said Nobuhiko Kuramochi, senior strategist at Mizuho Securities.

Semi-conductor related stocks were leading the decline after US tech shares slumped last week, logging four straight days of losses, with Philadelphia semiconductor shares index hitting one-month lows.

Taiyo Yuden lost 4.9%, while Sumco fell 4.0%. Tokyo Electron was down 2.2% while Advantest shed 1.4%.

The broader Topix lost 1.6%, with all of its 33 industry subindexes in the red, in line with shares slipping globally on rising concerns about a surge in coronavirus cases.

Tokyo Olympics organisers on Sunday reported the first COVID-19 cases among competitors residing in the athletes' village, as its population swells ahead of the start of the pandemic-hit Games next week.

"We could see clusters at Olympics, and then more infections in Tokyo. That could lead to political instabilities in Japan," said Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset Management.

Public support for Suga's cabinet has slid to 35.9%, a Kyodo poll showed on Sunday, the lowest since he took power last September.