Nikkei drops, snaps 5-day winning streak as exporters sold

* Nikkei, Topix down 0.8 pct

* Paused yen weakness takes toll on exporters

* Utilities fall on Nomura rating cuts

* Aozora nosedives on Cerberus' stake sale

TOKYO, Jan 7 (Reuters) - Japan's benchmark Nikkei average fell on Monday, snapping a five-session winning streak as a pause in the yen's weakness triggered profit-taking on exporters, while utility shares lost ground on brokerage downgrades. The Nikkei dropped 0.8 percent to 10,599.01. The dollar last traded at 87.85 yen, inching away from Friday's session high of 88.48 yen, the greenback's highest level against the Japanese currency since July 2010. A stronger yen cuts exporters' overseas earnings when repatriated. Analysts said sentiment in the Japanese market remained positive, underpinned by encouraging U.S. jobs data and expectations of aggressive monetary stimulus under new Prime Minister Shinzo Abe, which have weakened the yen and boosted exporters' shares over the past two months. But they also noted that a correction was no surprise with technical charts signalling overbought levels. The Nikkei has risen about 22 percent since mid-November when Abe started calling for aggressive easing, taking the index deeper into "overbought" territory. Its 14-day relative strength index is at 78.09, far above 70 which is considered overbought and often indicates an imminent adjustment. "There is strong caution against the steep rises in the market in a short period of time," said Kenichi Hirano, a strategist at Tachibana Securities. But traders said that although there may be more minor corrections to be seen, investors' risk appetites remain strong. "Expectations for a weak yen will likely continue until the Bank Of Japan's policy meeting, and there should be more room for stocks to rise further," said Naoki Fujiwara, a fund manager at Shinkin Asset Management. Fujiwara said that the yen's resistance level is seen at 90 yen to the dollar and the Nikkei's upside is expected around 11,000 until the central bank's two-day policy meeting scheduled on Jan 21-22. "But in order for the market to climb higher than the resistance level, we need more catalysts," he said. Exporters succumbed to profit-taking, with Toyota Motor Corp shedding 1.8 percent, Honda Motor Co falling 1.2 percent and Canon Inc dropping 2.6. Utility stocks tumbled, after Nomura Securities cut its ratings on some power utility companies. Kansai Electric Power Co fell 5.1 percent after Nomura cut its rating to "reduce" from "neutral", saying changes were unlikely in the Nuclear Regulation Authority's stance against reopening nuclear plants unless they are deemed safe. Kyushu Electric Power Co fell 4.2 percent after Nomura cut its rating to "reduce" from "neutral". Aozora Bank Ltd nosedived 10 percent after sources told Reuters that U.S. buyout firm Cerberus Capital Management LP is planning to sell most of its stake in the bank in a global offering that could be worth more than 200 billion yen ($2.3 billion). Banking shares were weaker, shrugging off news that global regulators have given banks more time to build up cash buffers. Mitsubishi UFJ Financial Group shed 1.7 percent and Sumitomo Mitsui Financial Group fell 1.1 percent. Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities, said Japanese banks are on track to meet the requirements and were working towards them in any case. The broader Topix dropped 0.8 percent to 881.06 in active trade, with 3.53 billion shares changing hands, about the same level with average daily trading volume in the final week of December.