Sept 22 (Reuters) -

Foreign investors increased their risk appetite, channelling funds into Japanese stocks last week, buoyed by data indicating that core U.S. inflation was slowing down.

Data from Japanese exchanges showed foreign investors purchased shares worth 542.22 billion yen ($3.66 billion) in the week ended Sept. 15, compared with about 719.58 billion yen of net selling in the prior week.

They were net buyers of derivatives worth 870.37 billion yen, but net sellers in cash equities, with 278.15 billion yen in net disposals.

Data last week showed the annual rise in U.S. core inflation was the smallest in nearly two years in August.

Japanese stocks saw big gains last week as the broader Topix index clocked a 33-year peak.

However, global stocks markets, including Japanese shares witnessed significant declines this week as the Fed surprised investors by flagging the potential for an additional rate increase and fewer cuts next year.

Local shares have shed over 2% this week.

Foreign investors have poured about 8.41 trillion yen into Japanese shares so far this year, compared with about 2.3 trillion yen worth of net selling last year.

Meanwhile, overseas investors offloaded about 2.42 trillion yen of short-term Japanese bonds, the biggest amount in three weeks according to data from Japan's Ministry of Finance.

They, however, remained net buyers in long-term bonds for a third straight week with purchases worth 439.4 billion yen.

On the other hand, Japanese investors accumulated a net 885.5 million of long-term overseas bonds, extending purchases into a fourth successive week. They, however, withdrew around 94.6 billion yen from short-term securities.

Japanese investors meanwhile, secured 62.6 billion yen of non-Japanese equities, staying net buyers for the third week in a row. ($1 = 148.2300 yen)

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Varun H K)