TOKYO, Oct 23 (Reuters) - Japan's Nikkei share average fell on Monday as events in the Middle East kept investors on edge, with a gauge of volatility spiking to the highest in 10 months.

The Nikkei slid 0.81% to 31,007.12 by the midday recess, hitting a two-week low. Of its 225 components, 161 fell versus 62 that rose, with two flat.

A Nikkei volatility index spiked as high as 23.81, a level not seen since Dec. 20.

The broader Topix declined 0.42%.

"Concerns about a possible worsening of Middle East tensions will continue to be a weight on the Japanese stock market today and indeed all this week," said Maki Sawada, a strategist at Nomura Securities.

Fears that the Israel-Hamas war could mushroom into a wider conflict rose over the weekend with Washington warning of a significant risk to U.S. interests in the region and announcing a new deployment of advanced air defences.

However, ongoing diplomatic efforts saw aid convoys start to arrive in Gaza, and Hamas's release of two American hostages buoyed hopes for the release of others.

Crude oil continued to climb down from multi-week highs, which made resource shares the Nikkei's worst performers on Monday.

Pacific Metals was the biggest percentage decliner, dropping 4.21%. Refiner ENEOS sank 2.76%.

Among the Tokyo Stock Exchange's 33 industry groups, oil and coal producers led losses by dropping 2.58%. Mining was next, down 2.1%, followed by a 1.4% slide for iron and steel companies.

Chip-related shares also underperformed, tracking U.S. peers as long-term Treasury yields at 16-year highs dimmed the outlook for so-called growth stocks.

Advantest dropped 3.05% and Renesas Electronics sank 2.47%.

The top performing sector was pharmaceuticals, rising 1.24%, powered for a second day by Daiichi Sankyo following a $5.5 billion deal with Merck to jointly develop cancer drugs. Daiichi Sankyo advanced 4.47%, while peer Astellas Pharma also gained 2.18%. (Reporting by Kevin Buckland; Editing by Subhranshu Sahu)