Japan's Nikkei share average ended more than 1% lower on Tuesday, dragged by declines in heavyweight chip-related shares, but losses were limited as investors bought value stocks for dividend payout rights.

The Nikkei index closed down 1.11% at 32,315.05.

"Growth shares weakened amid concern about rising U.S. Treasury yields," said Takehiko Masuzawa, trading head at Phillip Securities Japan.

U.S. Treasury yields extended rises, hitting their highest levels since October 2007 in Asian trading on expectations of the U.S. Federal Reserve likely keeping interest rates at higher levels for longer than initially anticipated.

Chip-making equipment maker Tokyo Electron slumped 3.7% to become the Nikkei's biggest drag. Chip-testing equipment maker Advantest lost 2.24%.

The broader Topix fell 0.57% to 2,371.94, a smaller slide than the Nikkei as investors bought value stocks set to go ex-dividend.

Investors need to buy stocks by the next session to get dividend payout rights for companies that count September as the end of their half-year.

"While gains in value stocks supported the market as investors bought stocks with higher dividend payouts," Masuzawa said.

Value shares see slower growth but tend to pay higher dividends to attract investors, while growth stocks tend to get hurt by higher interest rates as their potential lies in future cash flows.

The drug sector lost 1.35% to become the worst-performing sector among 33 industry sub-indexes on the Tokyo Stock Exchange.

Machinery makers slipped 1.22% and electronic machinery makers lost 1.18%.

Shipping firms gained 1.62% to become the top performer among the industry groups, while the banking sector gained 1.13% and the insurance sector rose 1.08%.

Japan Exchange Group rose 2.39% after the operator of the Tokyo Stock Exchange raised an annual net profit forecast.

(Reporting by Junko Fujita; Editing by Nivedita Bhattacharjee and Janane Venkatraman)