Japan's Nikkei slumps 5% as tech stocks hammered by AI, rate hike worries

TOKYO, Oct 15 (Reuters) - Japan's Nikkei share average tumbled nearly 5% on Thursday, with tech stocks hit hard by media reports about distressed debt at US cloud-computing provider CoreWeave, while hot US inflation figures sparked fears of higher interest rates.

The tech-heavy Nikkei .N225 ended the day down 4.9% at 64,425.95. The broader Topix .TOPX fell 2.4%.

Selling was concentrated among AI-linked stocks, with chip equipment makers Advantest 6857.T and Tokyo Electron 8035.T sliding 15% and 7.8%, respectively. AI-focused startup investor SoftBank Group 9984.T skidded 9.3%.

The market failed to draw any support from Taiwanese chipmaker TSMC's 2330.TW record earnings, which came late in the Tokyo session.

Overnight, a hotter-than-expected US CPI reading stoked bets that the Federal Reserve will need to raise rates earlier and keep them elevated longer, taking a toll on the highly leveraged tech sector. The US Nasdaq Composite .IXIC slumped 1.9% on Wednesday.

CoreWeave CRWV.O plunged more than 15%, even after the company's CEO said in an employee memo that its deal backlog is large enough to cover its debt obligations.

"Concerns have been raised that the financial health of AI-related companies may be deteriorating," said Nomura strategist Wataru Akiyama. "Consequently, concerns regarding AI capital expenditure and the profitability of the AI business have risen rapidly."

A standout winner on the day was pharmaceuticals, which was the Tokyo exchange's best-performing industry group .IPHAM.T, climbing 4% as investors rotated into the traditionally defensive sector. Sumitomo Pharma 4506.T was the Nikkei's biggest percentage gainer, up 15.8%.

Of the Nikkei's 225 components, 136 fell versus 87 that rose, with two ending flat.