TOKYO, April 11 (Reuters) - Japan's Nikkei share average

dropped on Thursday as a sharp spike in bond yields weighed on

chip sector shares and other growth stocks, while real estate

shares slumped as borrowing costs climbed.

The Nikkei fell 0.5% to 39,383.73 as of the midday

recess. It dipped as low as 39,065.31 earlier, threatening to

break below the psychological 39,000-line for the first time

since the end of last week.

The broader Topix pared early losses to be just

0.03% lower, with a 0.25% fall in the growth shares subindex

countered by a 0.18% rise for value shares.

"Japanese equities have been a target of profit-taking by

overseas investors," said Shoki Omori, chief Japan desk

strategist at Mizuho Securities, adding that valuations looked

stretched with "room to fall in the longer run", potentially to

around 37,500.

With the Bank of Japan's stimulus exit last month reducing

support for the local market, "there's no reason to go long big

tech stocks in Japan, as they simply follow U.S. peers," Omori

explained.

The benchmark 10-year Japanese government bond yield

climbed to a nearly five-month high of 0.835%,

tracking a surge in equivalent U.S. yields after

heated consumer inflation data knocked back bets on when the

Federal Reserve will begin cutting interest rates.

Chip-making equipment manufacturer Screen Holdings ( DINRF )

was the Nikkei's biggest percentage decliner, sliding 3.5%.

Bigger peer Tokyo Electron ( TOELF ) lost 0.7% to be the second

largest loser by index points. The biggest drag was Fast

Retailing ( FRCOF ), owner of the Uniqlo store chain, which

dropped 1% ahead of financial results due later in the day.

Japan's 7-Eleven operator Seven & i Holdings ( SVNDF )

slumped 3.2% after revealing it is considering listing its

superstore business.

Mitsui Fudosan ( MTSFF ) fell 3.1% to be Nikkei's

worst-performing property stock. Real estate led

losers among the Tokyo Stock Exchange's 33 industry groups,

dropping 1.7%.

(Reporting by Kevin Buckland; Editing by Janane Venkatraman

)