Nikkei drops, investors cautious about potential yen criticism at G20

* Banks and carmakers sold off on uncertainty about yen direction

* Rakuten and Yamaha fall on weak earnings

* Financials move further away from recent highs

* Nikkei on track for small weekly gain

TOKYO, Feb 15 (Reuters) - Japan's Nikkei share average dropped in early trade on Friday as investors pared their exposure to exporters and banks as investors cautiously await the outcome of the weekend G20 meeting. Finance officials from the G20 gather in Moscow, where they are expected to discuss Japan's economic policies, which have contributed to the yen's sharp decline against the dollar since November. "You need to be brave to buy today as there is great uncertainty about what is going to come out at the G20," said Shigeo Mito, manager of equity investment at Sumitomo Mitsui Trust. "It will be difficult to weaken the yen further if Japan's economic policies are described as currency manipulation by foreign officials," he added. The Nikkei fell 1 percent to 11,198.11 in morning trade, but remained on track to eke out a weekly gain, after last week's loss snapped a run of 12 straight weekly gains - the longest such winning streak since 1959. Financials that gained from the rally were in the firing line, with Mizuho Financial Group Inc shedding 4.3 percent as the top-traded share by turnover on the main board, pulling further away from a four-year high hit on Tuesday. Automakers, which have seen their share prices jump on expectations of higher overseas revenues due to weakness in the yen, were also sold off as some investors considered if the one-way bet on the yen against the dollar and euro was losing momentum. Mazda Motor Corp, Toyota Motor Corp and Honda Motor Co Ltd dropped between 2.7 and 4.8 percent. BOJ Governor Masaaki Shirakawa on Thursday defended the central bank's aggressive monetary expansion, saying it was aimed at reviving the economy, not at weakening the yen, but investors remain wary. The yen swung sharply up against the euro after data showed the euro zone had fallen deeper into recession in the last three months of 2012, painting a bleak picture of the region's economy. The contraction marked the region's first ever year without a single quarter of growth, extending back to 1995. "It's possible that the weakness of the euro zone's economy is down to the strengthening of the euro," said Masayuki Doshida, senior analyst at Rakuten Securities. "Still, the only thing that might support the market today is buying stocks on the dip, but the general mood is one of wait-and-see before the G20." Lower volume was expected on the Topix index, which underperformed the Nikkei, dropping 1.5 percent to 940.61 by mid-morning. Elsewhere, Yamaha Motor Co Ltd fell 7.5 percent to a three week low after its operating profit forecast for the year ending Dec. 31 fell short of consensus estimates due to slowing motorcycle sales in emerging countries. Online shopping site operator Rakuten Inc dropped 4.4 percent after posting an operating profit of 2.1 percent to 72.26 billion yen ($776 million) for the year ended December 31, undershooting analysts' expectations of around 80 billion yen.

Matsumoto Kiyoshi bucked the market, rising 3.6 percent to hit a 3-year high after the domestic pharmacy operator announced a commemorative dividend of ten yen per share on Thursday to celebrate the company's 80-year anniversary.