Updates with closing prices

By Junko Fujita

TOKYO, June 12 (Reuters) - Japan's Nikkei share average ended nearly 3% higher on Friday, as investors scooped up stocks after U.S. President Donald Trump touted a possible peace deal with Iran.

The Nikkei .N225 closed up 2.81% at 66,020.04 after rising as much as 4.4% earlier in the session.

In a volatile week, the index was down 0.85% for the week, snapping a three-week winning streak.

The broader Topix .TOPX gained 1.35% to 3,881.96.

Trump on Thursday said the U.S. and Iran could sign a peace deal as soon as this weekend that would reopen the Strait of Hormuz to shipping, but Iran countered that it had not reached a final decision on an agreement.

Chip-related shares led the Nikkei's gain, with Advantest 6857.T and Tokyo Electron 8035.T jumping 8.54% and 7.26%, respectively.

Bank shares rose ahead of the Bank of Japan's policy meeting next week, where the central bank is set to raise the policy rate to a 31-year high of 1%.

Mitsubishi UFJ Financial Group 8306.T and Mizuho Financial Group 8411.T rose 0.67% and 2.29%, respectively.

For the year so far, the bank index .IBNKS.T is up 30% and at the same level as in mid-February, before the Middle East war broke out.

It underperforms a 68% gain of the nonferrous sector .INFRO.T, where makers of fibre-optic cables such as Fujikura 5803.T and Furukawa Electric 5801.T, used by AI data centres, belong.

"This signals the instability of the equity market. Investors have not yet started rotating their targets toward a wide variety of stocks," said Takamasa Ikeda, a senior portfolio manager at GCI Asset Management.

Staffing agency Recruit Holdings 6098.T and electronic component maker Murata Manufacturing 6981.T fell 3.27% and 4.58%, respectively, to weigh on the Nikkei the most.

Camera and audio equipment maker Sony Group 6758.T fell 2.29%.