Japan's blue-chip Nikkei index dropped on Monday as investors sold equities following an escalation of violence in the Middle East and a sell-off on Wall Street at the end of last week.

Japanese semiconductor-sector stocks tracked their U.S. peers lower after a media report said Beijing ordered China's biggest telecom carriers to phase out the use of foreign chips.

Domestic earnings produced some outsized losers as well, with drugmaker Astellas and department store operator Takashimaya both tumbling.

The Nikkei lost 0.74% to close at 39,232.80, though that was well off early losses of as steep as 1.78%.

The broader Topix slipped 0.23%.

An already sombre backdrop from losses of more than 1% across the major Wall Street benchmarks on Friday was made even more gloomy after Iran launched an unprecedented attack on Israeli territory over the weekend.

"The risk-off mood is really pushing down on Japanese equities," said Kazuo Kamitani, an equities strategist at Nomura Securities.

However, with the Nikkei's 25-day moving average set to shift upwards from Tuesday as higher prices from before March 8 factor out, the technical picture is set to become more positive, Kamitani said.

"From tomorrow onwards, Japanese stocks can turn higher," he said.

Astellas led Nikkei decliners by plunging almost 8%, putting pharma at the bottom of the Tokyo Stock Exchange's 33 industry groups with a 1.86% slide.

Takashimaya was the Nikkei's second-biggest percentage decliner, down 6.66%.

Semiconductor-testing machine maker Lasertec led chip-sector losers with a 2.59% slide. Bigger peer Advantest dropped 1.31%.

Meanwhile, shippers and oil companies rose amid heightened Middle East tensions, adding 2.41% and 1.02%, respectively.

The top-performing sector was utilities, which was led 3.11% higher by a 5.83% rally in Tokyo Electric Power Company amid new steps toward resuming operations at its Kashiwazaki-Kariwa nuclear plant, the world's biggest. (Reporting by Kevin Buckland; Editing by Savio D'Souza and Sohini Goswami)