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Nikkei slumps to 4-month low as inflation scare hits expensive shares

* Nikkei falls 2.49%, down 7% in past 3 sessions

* SoftBank Group tumbles as tech shares come under pressure

* U.S. inflation scare hits stocks with elevated valuations

* Seven&i gains after ValueAct stake; Sumitomo Mitsui Trust up

TOKYO, May 13 (Reuters) - Japanese shares sank on Thursday, with the Nikkei average hitting a four-month low, as SoftBank Group and expensive stocks were pummelled by U.S. inflation scare.

The Nikkei dropped 2.49% to 27,448.01, hitting its lowest level since early January. Over the past three sessions, the index has lost 7.01%, its biggest three-day fall since the market turmoil in March 2020.

The broader Topix shed 1.54% to 1,849.04, touching a three-month low.

“Inflation worries are hitting high-tech stocks while rising domestic coronavirus infections are raising concerns about political stability. And, companies’ guidance is pretty soft,” said a strategist at a Japanese brokerage.

“But I do expect the market to bottom out soon. You can’t keep selling forever when earnings are still improving.”

A shocking rise in U.S. inflation published on Wednesday fanned worries U.S. interest rates may need to rise sooner than expected.

That bludgeoned Wall Street overnight, especially tech shares whose high valuations have been based on the assumption of low interest rates, and hit Japanese equivalents as well.

SoftBank Group dropped 7.8% as concern over its frothy portfolio valuations eclipsed the fact that it has announced a record profit for a Japanese firm.

Other richly valued shares, mainly from the tech and healthcare sectors, fell sharply, with medical equipment maker Terumo down 4.4%, chip-making machine maker Tokyo Electron losing 4.7% and medical diagnostics products maker Sysmex dropping 4.2%.

Also hurting market sentiment, Japan is struggling to contain the COVID-19 pandemic, forcing dozens of towns to abandon plans to accept overseas athletes competing in the Olympics from July due to concerns about inadequate resources.

Earning results also continued to weigh on the market, with softer-than-expected guidance often enough to trigger big selling, dwarfing improving profits.

Game company Nexon lost 14.3%, while electronics maker NEC dropped 14.1%. Plant maker JGC Corp fell 13.4%.

Retailer Seven&i Holdings jumped 5.0% to a two-year high after activist investor ValueAct Capital amassed a $1.53 billion stake in the firm.

Sumitomo Mitsui Trust Holdings gained 3.2% after the Nikkei business daily reported the banking group planned to sell down all of its cross-holding shares. (Reporting by Hideyuki Sano; Editing by Subhranshu Sahu)

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