TOKYO, Oct 16 (Reuters) - Japan's Nikkei share average declined over 2% on Monday, dragged by chip-related shares, with risk appetite being hurt as tensions in the Middle East escalated.

The Nikkei index fell 2.03% to close at 31,659.03. The broader Topix lost 1.53% to 2,273.54.

"As risks for the Middle East rose, investors braced for further declines in markets and cut their long positions in stocks," said Takehiko Masuzawa, head of trading at Phillip Securities Japan.

The Nikkei 225 volatility index jumped 4.67% to 21.90, its highest since Oct. 4, when the Nikkei lost 2.3% in its biggest daily decline in two months

On Friday, the S&P 500 and the Nasdaq fell as deteriorating consumer sentiment data and the Middle East conflict soured investors from taking riskier bets. The Dow Jones Industrial Average inched up 0.12%.

Heavyweight chip-related stocks fell, tracking U.S. technology stocks, with Tokyo Electron and Advantest falling 3.84% and 4.79%, respectively.

Technology start-up investor SoftBank Group slipped 2.04%.

Railway operator Keio lost 6.33% to become the worst performer on the Nikkei.

Bucking the trend, Lawson rose 2.34% after raising its annual profit forecast on robust performance at its convenience stores.

Ryohin Keikaku surged 8.91% after the operator of retail outlet brand Muji forecast annual profit which beat market consensus.

All but two of 33 industry sub-indexes on the Tokyo Stock Exchange fell.

Energy explorers climbed 2.55%, with Inpex jumping 2.7% to become the top performer on the Nikkei.

Refiners rose 1.41%, with Eneos Holdings rising 1.89%. (Reporting by Junko Fujita; Editing by Janane Venkatraman and Varun H K)