CORRECTED-Nikkei down as exporters fall on profit-taking

(Corrects headline to show market has open)

* Nikkei down 0.2 pct, Topix off 0.1 pct

* Mothers market strong, small-to-mid size shares up

* Market cautious before earnings season - trader

TOKYO, Jan 8 (Reuters) - Japan's Nikkei fell on Tuesday as investors turned cautious over the index's recent rapid gains and sold shares in exporters as the yen's depreciation paused, but investor sentiment is supported by ongoing policy easing hopes. The Nikkei dropped 0.2 percent to 10,575.16 in mid-morning trade. Analysts said that investors took profits on some exporters' recent gains now that the weakening of the yen appears to have paused for the time being. Toyota Motor Corp shed 0.7 percent, Nissan Motor Co dropped 0.9 percent and Fanuc Ltd weakened 1.3 percent. "Market sentiment is still positive on the back of hopes for further easing, but buying may pause on bellwether shares while small caps may attract buying," said Hiroichi Nishi, general manager at SMBC Nikko Securities, adding that domestic retail investors have belatedly come back and have started buying small caps. The Mothers Exchange, which lists small-to-mid size companies, was up 0.4 percent after hitting the highest level since Sept. 2011 on Monday. The dollar traded at 87.53 yen, retreating from a 2-1/2 year high of 88.48 yen marked on Friday as robust appreciation over the past month had investors opting to book profits despite forecasts of further Bank of Japan stimulus later in the month.

CAUTIOUS MOOD BEFORE 3Q EARNINGS As the majority of companies start releasing their earnings for the Oct-Dec period mid to late this month, investors are growing cautious amid anticipation of sluggish growth in corporate profits, traders said. "Some stocks that have been rising won't see justifications to rise further such as industrial machinery makers and some autos as their third-quarter earnings are seen weak," said a trader at a foreign brokerage. "Broadly, people remain bullish but the market won't probably rise in a straight line." But he added that with expectations for the central bank to come up with further stimulus measures, drops may be limited despite possible profit-taking on exporters. New Prime Minister Shinzo Abe, whose Liberal Democratic Party (LDP) surged to power in December's lower house election, has called on the central bank to take bolder monetary stimulus measures to beat deflation, and possibly hold it accountable not just for pushing up prices but also boosting job growth. A final decision will be made at the Bank Of Japan's next rate review on Jan. 21-22, when it will debate setting a higher inflation target than the current 1 percent goal. 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 77.02, far above 70 which is considered overbought and often indicates an imminent adjustment. The broader Topix shed 0.1 percent, to 879.88.

(Editing by Eric Meijer)