TOKYO, Aug 22 (Reuters) - Japan's Nikkei share average on Tuesday ended higher for a second day, with banks climbing amid a surge in bond yields and chip-related shares tracking gains in Wall Street peers.

The Nikkei advanced 0.92% to close at 31,856.71. Of its 225 components, 185 rose, 35 fell, and 5 were flat.

With Tuesday's gains, the Nikkei extended a 0.37% rise in the previous session, after the benchmark index hit a 2-1/2-month low last week.

The broader Topix jumped 1.08% to end at 2,265.71.

Among the Tokyo Stock Exchange's 33 industry groups, banking was the best performer, gaining 2.92% as higher long-term yields boosted the outlook for profit from lending.

Resona Holdings rose 3.5%, Mitsubishi UFJ Financial Group gained 3.2% and Sumitomo Mitsui Financial Group advanced 3.16%.

Chip-testing equipment maker and Nvidia supplier Advantest rallied 4.6% to become the top performer on the Nikkei, and added 58 points to the index.

Shares of Nvidia soared 8.5% overnight ahead of the chip designer's earnings announcement on Wednesday.

"Investors bought back (Japanese) chip shares after U.S. chip shares rose overnight," said Shigetoshi Kamada, general manager at the research department at Tachibana Securities.

"They had been short selling those shares amid caution ahead of Nvidia's earnings."

SoftBank Group rose 1.4% as the startup investor's chip designer Arm Holdings heads for an initial public offering.

At the other end, companies with heavy exposure to China underperformed, with the country's economy stuttering and an underwhelming stimulus in the major trading partner.

Cosmetics companies Kao fell 1.09% and Shiseido lost 0.25%.

Uniqlo store operator Fast Retailing also stood out for flipping from an early advance to end 0.24% lower. (Reporting by Kevin Buckland; Additional reporting by Junko Fujita; Editing by Varun H K)