(Updates with closing prices)

By Kevin Buckland

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

fell on Thursday as a sharp spike in bond yields weighed on tech

and real estate shares, but escaped deeper losses as a rally for

banks, which benefit from higher borrowing costs, picked up

pace.

The Nikkei closed down 0.35% to 39,442.63. The index

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 flipped from losses to gains,

ending the day up 0.15% as a 0.42% rise for value shares

eclipsed a 0.13% fall in growth shares.

The Nikkei remains up almost 18% this year, and hit an

all-time high of 41,087.75 on March 22.

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

overseas investors," said Shoki Omori, chief Japan desk

strategist at Mizuho Securities.

"There's room to fall in the longer run", potentially to

37,500, Omori added.

The benchmark 10-year Japanese government bond yield

climbed to a five-month high of 0.855%, 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 giant Tokyo Electron ( TOELF ) lost

0.94%, making it the biggest drag on the Nikkei in terms of

index points. Smaller peer Screen Holdings ( DINRF ) slid more

than 2%.

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

the biggest percentage decliner, slumping 4.8% after revealing

it is considering listing its superstore business.

Mitsui Fudosan ( MTSFF ) sank more than 4% to be Nikkei's

worst-performing property stock.

Real estate led losers among the Tokyo Stock

Exchange's 33 industry groups, dropping 2.2%.

In contrast, banks climbed 2.1% to round out the

top four, with energy shares occupying the top three spots

following an overnight rise in crude oil prices.

Mining rallied 3.7%, oil and coal

jumped 2.5%, and electric and gas advanced 2.4%.

(Reporting by Kevin Buckland; Editing by Janane Venkatraman

)