* Nikkei down 1.1 pct, looks set for near 1 pct gain in 2016
* Toshiba plummets after credit downgrades
* Chip testing device makers fall after Nvidia's fall spooks
By Ayai Tomisawa
TOKYO, Dec 29 (Reuters) - Japan's Nikkei share average fell to a more than two-week low on Thursday tracking weakness on Wall Street, but Takata Corp surged on news that the maker of defective air bags could settle U.S. criminal charges next month.
Meanwhile, Toshiba Corp continued to worry investors, diving as much as 26 percent to hit the lowest level since May after rating agencies cut the company's credit ratings.
On the previous day, its stock stumbled 20 percent to its daily-limit low on lingering worries about its big special loss.
Moody's Japan K.K. downgraded Toshiba's corporate family rating to "CAA1" from "B3", while S&P Global Ratings cut its long-term corporate credit to "B-" from "B".
The Nikkei dropped 1.1 percent to 19,184.75 points by midmorning after hitting as low as 19,168.06, the lowest level since Dec. 13.
The index looked set to end the year with a gain of nearly 1 percent after a more than 16 percent rally in the fourth quarter.
"In a holiday-thinned market, there are even fewer buyers today especially after we saw a sharp drop in the U.S. market," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
He also said that the technology sector, and semiconductor stocks in particular, was hit harder after U.S. visual computing company Nvidia plummeted overnight after short seller Citron Research said the market was overlooking the headwinds for the stock - which had earlier touched a record high.
"Nvidia is like a shining star which was attracting buyers lately, so its sharp drop sent shock across the sector, and Japanese chip testing machine makers which have been rising lately became a target of profit-taking," Fujito said.
Advantest Corp fell 1.9 percent, snapping a sixth-day winning streak, while Tokyo Electron Ltd, which had been rising for 11 straight days until Wednesday, dropped 2.6 percent.
These stocks had been bought on expectations that their testing devices are in high demand on the back of strong demand for 3D NAND chips used for high-end smartphones.
Takata soared 16 percent after a source told Reuters that it could settle criminal charges with the U.S. Department of Justice before the Obama administration leaves office next month.
The broader Topix dropped 1.1 percent to 1,520.15 and the JPX-Nikkei Index 400 shed 1.1 percent to 13,636.50. (Editing by Kim Coghill)