rewrite - nginx point subdomain to subfolder

I want http://blog.domain.com/ to point to http://www.domain.com/blog

Just a notice, not to redirect to that location, but just point to it.
Also /blog is not a folder. It could be blog.php for example

So when I navigate to http://blog.domain.com, the website display's content from http://www.domain.com/blog

What I tried so far:

server{

  listen 80;
  server_name blog.domain.com;

  rewrite ^/blog(.*) http://blog.domain.com/$1 permanent;    
}

The result is nginx returning 404 not found error.