(Updates with closing levels)

By Brigid Riley

TOKYO, May 16 (Reuters) - Japan's Nikkei share average

finished at its highest in a month on Thursday, as technology

shares tracked their overseas peers higher after cooling U.S.

inflation boosted market expectations for the Federal Reserve to

cut rates in September.

The closely watched U.S. CPI report on Wednesday showed

prices increased less than expected in April, suggesting that

inflation resumed its downward trend.

That gave the green light to investors to keep buying, with

Wall Street's three major indexes notching record closes

overnight.

Positive sentiment continued in Asian hours, with the Nikkei

finishing up 1.39% at 38,920.26, its highest closing

level since April 15. It briefly touched a one-month intraday

peak of 38,949.38.

"The mood is one of relief," said Kyle Rodda, senior

financial market analyst at Capital.com.

"If nothing else, (Wednesday's CPI) says a serious

discussion about the need for further hikes has been taken off

the table."

Tech shares pulled the bulk of the weight on Thursday,

riding after the S&P 500's rate-sensitive tech stocks led sector

gains.

Chip-related shares Tokyo Electron ( TOELF ), up 4.5%, and

Advantest ( ADTTF ), rising 3%, added a combined 197.5 points to

the Nikkei's near 535-point jump.

However, 126 of the Nikkei's 225 constituents declined, as

Japan's earnings season wound up and investors searched for the

next market driver.

The yen's appreciation following U.S. CPI also weighed on

shares of export-related firms, including index heavyweight

Toyota Motor ( TM ), down 1.6%.

The broader Topix closed up only 0.24% at 2,737.54.

Among other individual stocks, Uniqlo parent firm Fast

Retailing ( FRCOF ) gained 1.6%.

Recruit Holdings ( RCRRF ) was up 9.1% on the staffing agency

and publisher's upbeat revenue release.

Mitsubishi UFJ Financial Group ( MUFG ) fell 4.3% after the

firm forecasted only a slight profit growth in the current

financial year.

(Reporting by Brigid Riley; Editing by Janane Venkatraman

)