Japan's Nikkei skidded to a two-week low on Thursday, as chip-related stocks were hit after Canada arrested a senior executive of tech giant Huawei in Vancouver at the request of the United States.

Canada's Department of Justice had said on Wednesday Huawei's global chief financial officer Meng Wanzhou is now facing extradition to the United States. The arrest is related to violation of US sanctions, a person familiar with the matter said.

The Nikkei share average tumbled 1.8 per cent to 21,514.98 at the midday break after skidding to 21,490.52 earlier, the lowest level since November 22.

Meng's arrest could inflame tensions between China and the United States just days after presidents Donald Trump and Xi Jinping agreed to steps to resolve their trade war at a meeting in Argentina.

“This is really disappointing after the market took the temporary halt to further tariffs between the U.S. and China as a relief early this week,” said Takuya Takahashi, a strategist at Daiwa Securities.

Takahashi said the news has had a ripple sell-off effect on the Japanese chip sector. Sumco Corp tumbled 6 per cent, Shin-Etsu Chemical dropped 3.9 per cent, Tokyo Electron shed 5 per cent and Advantest Corp plunged 5.4 per cent. Falling US futures added to the downbeat sentiment, with S&P 500 e-mini futures off 0.9 per cent.

Moving in the opposite direction, defence-related stocks soared after CNN reported that new satellite images obtained by it revealed that North Korea has significantly expanded a key long-range missile base located in the mountainous interior of the country.

Ishikawa Seisakusho surged 5.8 per cent, Howa Machinery added 1.8 per cent and Hosoya Pyro-Engineering jumped 8.8 per cent. The broader Topix dropped 1.6 per cent to 1,613.97.

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