TOKYO, Dec 7 (Reuters) - Japan's Nikkei share average fell sharply on Thursday following Wall Street declines overnight ahead of key jobs data that should provide clues on how soon the U.S. Federal Reserve could start cutting interest rates.

The Nikkei dropped 1.63% to 32,899.94 as of the midday recess, with 199 of its 225 components declining, 25 rising and one trading flat.

That undid the bulk of the index's more than 2% rebound on Wednesday from a three-week low.

The broader Topix sank 1.19%.

Amid a lack of domestic drivers, investors are taking cues from overseas markets and the currency exchange rate, while waiting for Friday's release of the monthly U.S. non-farm payrolls report, said Maki Sawada, a strategist at Nomura Securities.

However, declines are likely to be limited, she said.

"If Asian stocks are weak, it'll be a weight on Japanese stocks, but in the event of declines, the 25-day moving average should support the Nikkei above 32,800."

Utilities, a traditional defensive sector, was the only Nikkei industry group to gain. Energy was the biggest decliner, after crude oil dropped to six-month lows.

Chip shares were also standout underperformers, making up two of the Nikkei's three biggest drags. Chip-making equipment giant Tokyo Electron shaved 82 points from the index, followed by 65 points by Uniqlo store operator Fast Retailing .

Chip-testing equipment maker Advantest was third, erasing 53 points with a 4.49% slide, the sharpest decline on the index.

Automakers were weak amid a strengthening yen, which cuts the value of foreign sales. Toyota slid 1.36%, Honda sank 2.03% and Subaru shed 2.23%.

Rakuten Group slipped 1.4% after the e-commerce and fintech giant announced it would sell nearly 15% of the online bank unit, Rakuten Bank. Shares in the lender tanked 8.44%. (Reporting by Kevin Buckland; Editing by Rashmi Aich)