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 was the Nikkei's biggest percentage decliner, sliding 3.5%. Bigger peer Tokyo Electron lost 0.7% to be the second largest loser by index points. The biggest drag was Fast Retailing, 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 slumped 3.2% after revealing it is considering listing its superstore business.

Mitsui Fudosan 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 )