SINGAPORE, Sept 28 (Reuters) - Japan's Nikkei share average suffered its biggest one-day percentage drop in a month on Thursday as worries that U.S. interest rates would stay at elevated levels rattle investors.

The Nikkei closed down 1.54% at 31,872.52 on Thursday, having dropped to a one-month low of 31,674.42 during the session. The broader Topix shed 1.42% to 2,345.71, a near four-week trough.

"The Nikkei is on track for its third monthly fall in a row as the Fed's hawkish hold last week took the wind from its sails," said Tony Sycamore, market analyst at IG.

"(Still) the Nikkei has outperformed most of its global peers, including American and European Equity indices... Nikkei is approaching the end of its correction from the June high."

The Nikkei has slipped about 5% since scaling a 33-year peak in June but is still up roughly 23% this year and remains Asia's best-performing stock exchange in 2023 helped by strong foreign inflows.

Data from the Ministry of Finance though showed foreign investors sold Japanese shares worth 3 trillion yen ($20.08 billion) in the week ended Sept. 23, a record weekly net selling by foreigners.

Overnight, the S&P 500 eked out a slim gain after a see-saw session as investors weighed whether to start bargain-hunting following a sell-off fuelled by elevated Treasury yields and uncertainty about the path ahead for interest rates.

Japan's Finance Minister Shunichi Suzuki said the country won't rule out any options to deal with excessive currency volatility, reiterating a warning against speculative moves on the yen which is struggling near 11-month lows against the dollar.

The dollar/yen hit 149.71 on Wednesday and traded at 149.40 on Thursday in Asia.

Softbank Corp and Matsui Securities Co Ltd fell around 4% and were the top percentage losers on the Nikkei.

Chugai Pharmaceutical Co Ltd rose 4%, providing the biggest support to the index.

($1 = 149.4000 yen) (Reporting by Ankur Banerjee in Singapore; Editing by Rashmi Aich and Sohini Goswami)