March 27 (Reuters) - U.S. property data group CoStar ( CSGP ) raised its acquisition bid on Thursday for Domain Holdings, Australia's ( DHGAF ) second-largest real estate classifieds company, with the revised deal now valued at A$2.80 billion ($1.76 billion).

Shares of Domain slipped as much as 4.7% to A$4.26 per share, hitting their lowest level since February 24.

"The sell-off may be due to investors not wanting the deal to go ahead," BellDirect market analyst Grady Wulff said.

"Investors may believe the deal undervalues Domain, or they may be profit-taking, as Domain's share price is trading near a five-year high and on a high valuation of around 51x PE."

CoStar ( CSGP ) sweetened its offer to A$4.43 per share on a "best and final" basis, Domain said in a statement, representing a 5.5% premium to its initial proposal of A$4.20.

If the deal goes through, it would be CoStar's ( CSGP ) first Australian foray and would reshape dynamics in a market where listing volumes have sagged as high living costs slowed the country's hot housing sector but are improving with interest rates coming down.

For years, Domain has lagged behind the larger classifieds site realestate.com.au, which is owned by News Corp ( NWSA )-controlled REA Group ( RPGRF ).

The deal would provide a capital injection to Domain's 60% owner, Nine Entertainment ( NNMTF ), which also owns newspapers and free-to-air television networks.

In a separate exchange filing, Nine Entertainment ( NNMTF ) said it was "supportive" of Domain's decision to allow CoStar ( CSGP ) due diligence access at the revised offer price.

It added that the revised price would equate to cash proceeds to Nine of around A$1.4 billion.

Shares of Nine Entertainment ( NNMTF ) slipped as much as 1% to a one-week low of A$1.57.

Domain also said it may be able to declare a pre-completion special dividend under the improved proposal, with the firm's board deciding to unanimously engage with CoStar ( CSGP ).

($1 = 1.5911 Australian dollars) (Reporting by Shivangi Lahiri in Bengaluru, additional reporting by Nikita Maria Jino; Editing by Vijay Kishore, Sherry Jacob-Phillips and Rashmi Aich)