Nikkei slips off 4-year high on pause in yen's drop; Sony rises

* Trading volume heavy

* Nikon nosedives on sharp profit outlook cut

* Mazda and Fuji Heavy attractive - trader

* Strong forecast expected for Sony - traders

TOKYO, Feb 7 (Reuters) - Japan's Nikkei share average retreated on Thursday from a more than four-year high hit a day earlier as a pause in the yen's decline and caution ahead of a European Central Bank meeting gave investors reason to take profits on export-driven firms. The Nikkei share average shed 0.8 percent to 11,374.26 by the midday break, retreating from a high of 11,498.42 struck on Wednesday. The yen, which fell to a 33-month low of 94.08 to the dollar on Wednesday, last traded at 93.51. Nikon Corp plummeted as much as 19 percent to a daily limit of 2,139 yen and its lowest level in more than two months, as a sharp cut in its outlook disappointed investors who had chased the stock higher over the past three months. The stock was the biggest loser on the board in percentage terms and dragged down the precision machinery sector , which dropped 5.3 percent. The camera maker, whose shares had climbed 45 percent since mid-November when Prime Minister Shinzo Abe's calls for aggressive monetary easing put the yen on a long slide, slashed its operating profit forecast by a third, citing sluggish sales of interchangeable-lens cameras due to increased competition.

"Nikon's sharp cut in its outlook startled us... I'm not surprised if investors are dumping the stock immediately and even shorting it as there are better stocks to buy," said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management. Akino regarded exporters as Mazda Motor Corp and Fuji Heavy Industries Ltd as attractive due to their bright earnings.

BUCKING WEAK TREND Bucking the market's overall weakness, Sony Corp gained 3.2 percent on expectations for strong results to be released after the bell. "People are expecting that the company will raise its outlook given the recent weakness in the yen," said Hideyuki Okoshi, general manager at Chibagin Securities. "But further gains in the stock should be limited if the company expects strong earnings for the next fiscal year merely on a weak yen. Eyes are on the performances of its main businesses." Separately, sentiment in Sony is rising after the Asahi Shimbun reported that the company plans to release its new Playstation 4 home console this year for around $430.

Among other gainers, Mazda Motor soared 14.5 percent after the carmaker raised its operating profit forecast for the year ending March 31 by 80 percent to 45 billion yen ($482 million), which would be its highest since the year ended March 2008. Shares of Mazda, which exports about 80 percent of its cars, were the most-traded by turnover on the main board. Fuji Heavy Industries, which makes Subaru cars and is seeing strong sales in the United States, its biggest market, was 3.0 percent higher after raising its operating profit outlook by 25 billion yen to a record 107 billion yen. Market strategists said a correction is natural after recent sharp gains in the Japanese market, but it was likely to rise in the mid-to-long term on hopes for aggressive monetary easing. Investors were expected to take a wait-and-see approach ahead of a meeting of European Central Bank policymakers later on Thursday that could impact the currency market.

"Hopes for 'Abenomics' are supporting the mood, but investors are also sensitive to the currency moves, so right now, even small uncertainty on Europe can be a reason to pull back," said Hiroichi Nishi, an assistant general manager at SMBC Nikko Securities. Bank of Japan Governor Masaaki Shirakawa said on Tuesday he would step down, together with his two deputies, three weeks before the end of his five-year term in April. Prime Minister Shinzo Abe has put the central bank under relentless pressure to do more to pull the economy out of the doldrums. He has made it clear that he wants a governor who will be bolder in loosening monetary policy. The broader Topix was flat at 969.09 in heavy trade, with 2.8 billion shares changing hands by the midday break, or 117.4 percent of its full day average volume of the past 90 days.