Nikkei falls 1.7 pct, exporters sold on stronger yen

(Updates to midmorning)

TOKYO, June 3 (Reuters) - Japan's Nikkei stock average dropped 1.7 percent on Tuesday, with exporters like Honda Motor Co Ltd (7267.T) sliding on a stronger yen and overnight losses on Wall Street.

Financial shares such as top lender Mitsubishi UFJ Financial Group (8306.T) fell after their U.S. peers tumbled on a credit agency downgrade, raising new fears over the impact of the credit crunch.

"Forgotten problems were brought up again," said Fumiyuki Nakanishi, a group manager in the investment research department at SMBC Friend Securities.

He added that the Tokyo market had been due for some profit-taking after three days of gains.

As of 0105 GMT, the benchmark Nikkei average .N225 fell 250.69 points to 14,189.45. The broader Topix index lost 1.5 percent to 1,404.43.

Mitsubishi UFJ fell 1.5 percent to 1,112 yen. Mizuho Financial Group (8411.T), the second-largest bank, was down 1.5 percent at 582,000 yen.

"It seems investors do not have such a pessimistic view of Japanese banks," SMBC Friend's Nakanishi.

Bank shares has risen sharply on Monday on expectations for earnings growth.

Honda fell 3.3 percent to 3,490 yen and high-tech devices maker Kyocera fell 2.1 percent to 9,910 yen, making them the biggest drags on the Nikkei.

On the TSE's Mothers startup market, Skymark Airlines Inc (9204.T) plunged 9.4 percent to 193 yen after the carrier reported to the authorities that it would cancel 168 flights in June due to a shortage of pilots. (Reporting by Taiga Uranaka; Editing by Hugh Lawson)