UPDATE 1-Japan chip gear orders climb, but still weak

* May chip gear orders up 22 pct m/m, down 65 pct y/y

* May semiconductor equipment sales down 70 pct y/y

* Book-to-bill ratio at 0.66 in May vs 0.44 in April

TOKYO, June 17 (Reuters) - Orders for Japanese chip-making equipment rose for the third straight month in May, suggesting conditions may be levelling off in the semiconductor sector, which has been weakened by slow demand and low prices.

In the latest sign of bottoming out, orders for tools used to make microchips rose 22 percent in May from the previous month to 31.4 billion yen ($326 million), calculations based on industry data showed on Wednesday.

But orders were still down 65 percent from a year earlier.

The ratio of the three-month moving average of orders to sales stood at 0.66 in May, preliminary figures from the Semiconductor Equipment Association of Japan showed, meaning that for every 100 yen of sales, chip makers placed new orders worth 66 yen with Japanese equipment makers.

That was up from 0.44 in April, but still well below 1.00. A reading above 1.00 shows that orders are outpacing sales, signalling a recovery in subsequent months.

Calculations based on the data showed that the annual order decline was 2.8 percentage points smaller in May than in April, in the third straight month of improvement.

Orders for machines to process, test and slice silicon wafers into microchips take anywhere from a month to a year to fill.

Even as the worldwide economic slowdown forces the weakest players to file for insolvency or raise capital, chip giants such as Samsung Electronics Co Ltd (005930.KS) and Intel Corp (INTC.O) are looking at new equipment to outrun rivals when an expected recovery comes in the second half of the year.

Chip gear sales in May were at 24.8 billion yen, up 9.6 percent from April and down 70 percent from the previous year.

Japan is home to chip equipment makers such as Tokyo Electron Ltd (8035.T), Advantest Corp (6857.T), Nikon Corp (7731.T), Disco Corp (6146.T) and Yokogawa Electric Corp (6841.T). ($1=96.41 Yen) (Reporting by Mayumi Negishi; Editing by Hugh Lawson)