* Defence shares attract buyers
* Nikkei volatility index jumps to highest since April
* Nikkei futures closed 19,395 on CME
By Ayai Tomisawa
TOKYO, Aug 14 (Reuters) - Japan’s Nikkei share average on Monday tumbled 1.0 percent to a 3-1/2-month low following a holiday weekend, as tension between the United States and North Korea prompted investors to shed riskier assets.
The yen’s gains on Friday and rising geopolitical concerns overshadowed data showing Japan’s economic grew at a much stronger pace than expected in the second quarter.
The Nikkei ended 1.0 percent lower at 19,537.10, the lowest closing level since May 2.
The Nikkei volatility index soared 14.76 percent to 18.66, the highest level since April 24.
Japanese markets were closed on Friday for a national holiday, and were catching up in part to global equity market losses last week and a drop in the dollar that day.
Some analysts said that the Nikkei might have fallen further on Monday if not for the encouraging economic data, as well as expectations that the Bank Of Japan would buy exchange-traded funds.
“Compared to how the Nikkei futures closed in Chicago on Friday, the market is well supported,” said Hikaru Sato, a senior technical analyst at Daiwa Securities.
The Nikkei 225 futures closed at 19,395 on Chicago Mercantile Exchange on Friday, which had suggested that the Nikkei would fall sharply on Monday.
Japan’s economy grew in the second quarter at the quickest pace in more than two years as consumer spending and capital expenditure both rose at the fastest in more than three years.
Gross domestic product expanded an annualised 4.0 percent in April-June, more than the median estimate for 2.5 percent and the biggest increase since January-March 2015.
“Once geopolitical risks settled down, investors will likely revisit the fact that Japan’s fundamentals are strong,” Sato said.
For the near term at least, tensions over North Korea are expected to remain a key theme for global investors, weighing on risky assets including Japanese stocks, traders said.
Insurers and banks, which invest in higher-yielding products such as foreign bonds, underperformed after U.S. yields dropped on weaker-than-expected U.S. inflation data.
The data further eroded expectations of an interest rate hike by the U.S. Federal Reserve in December.
T&D Holdings tumbled 2.7 percent and Dai-ichi Life Holdings 1.9 percent, while Mitsubishi UFJ Financial Group dropped 1.2 percent.
Exporters were broadly lower after the dollar dropped to 108.72 yen on Friday, its lowest level since April 19, before climbing back to 109.58 in Monday Asian trade.
Toyota Motor Corp dropped 1.5 percent, Honda Motor Co shed 1.5 percent and Panasonic Corp fell 1.6 percent.
Meanwhile, defence equipment makers attracted buyers, with Ishikawa Seisakusho soaring 21 percent, Howa Machinery rising 6.6 percent and Tokyo Keiki advancing 9.9 percent.
The broader Topix shed 1.1 percent to 1,599.06. (Editing by Richard Borsuk)