Nikkei falls, investors wary of potential yen criticism at G20

* Banks, carmakers sold on uncertainty about yen direction

* Rakuten, Yamaha Motor fall on weak earnings

* Financials move further away from recent highs

* Nikkei faces a 2nd straight weekly loss

TOKYO, Feb 15 (Reuters) - Japan's Nikkei share average dropped in morning trade on Friday as investors pared exposure to exporters and banks while awaiting a Group of 20 meeting where the yen's level will be a focus. Finance ministers from G20 nations this weekend meet in Moscow, where they are expected to discuss Japanese economic policies, which have fuelled 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 0.9 percent to 11,207.93 by the midday break. A full-day fall of 1.4 percent or more would mean a second straight week of losses following 12 consecutive weekly gains - the longest winning streak since 1959. The Topix index underperformed the Nikkei, dropping 1.5 percent to 940.52 in the morning session. Some analysts said they had expected lower volume on uncertainty ahead of the G20 meeting, but trading on the main board was relatively active, reaching 83.7 percent of its full-day average over the past 90 trading sessions. "A lot of stocks that were driven up by margin trading are now falling as people cut their losses after calls," said Yasuo Sakuma, portfolio manager at Bayview Asset Management. "It looks like those stocks, along with the Mothers index that is so popular among retail investors, have peaked out," he said. "In the short term, selling could result in more selling." The Mothers index, made up of small to mid-sized companies and emerging stocks, slid 5.5 percent on Friday morning, leaving it 20.3 percent lower than a four-year high of 604.36 hit on Jan. 29. Financials that have gained from the rally were in the firing line on Friday , 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, whose share prices had jumped on expectations of higher overseas revenue due to the yen's weakness, were also sold off as some investors thought 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 2.6 and 4.4 percent. Bank of Japan Governor Masaaki Shirakawa defended the central bank's aggressive monetary expansion on Thursday, saying it was aimed at reviving the economy, not at weakening the yen.

Investors remain wary. The yen swung sharply up against the euro after data showed the euro zone fell deeper into recession in the last three months of 2012. The contraction made 2012 the region's first year without a single quarter of growth since 1995. "It's possible that the weakness of the euro zone's economy is due 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." Yamaha Motor Co Ltd fell 7.1 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 percent after its full-year operating profit came in below analysts' expectations. Matsumoto Kiyoshi bucked the market, rising 6.8 percent to a 3-1/2-year high after the domestic pharmacy operator announced a commemorative dividend of 10 yen per share on Thursday for its 80-year anniversary, bumping its annual dividend up to 50 yen.