* Exporters with high exposure to Europe underperform * Foreigners will likely continue buying Japanese stocks in long-term - analyst * Foreigners bought 5.83 trillion yen worth Japan shares in 18 weeks By Ayai Tomisawa TOKYO, March 22 (Reuters) - Japan's Nikkei share average fell on Friday, pulling back from a 4 1/2-year high marked on the previous day on worries Cyprus may default on its debt, while gains in the yen hurt exporters. The Nikkei dropped 1.4 percent to 12,458.31, retreating from 12,650.26 hit the previous day, the highest intraday level since early September 2008. "The renewed concerns about a Cyprus bailout is hitting the mood. Investors worry about the effect on the euro zone. The Tokyo market has 'overbought signs' anyway, so profit-taking won't be surprising," said Hiroichi Nishi, an assistant general manager at SMBC Nikko Securities. The Nikkei traded 6.8 percent above its 25-day moving average. When the index moves more than 5 percent above the technical line, it is considered overbought. Exporters with high exposure to the euro zone led the declines, with Mazda Motor Corp sliding 2.3 percent, Sony Corp falling 2.7 percent, Nikon Corp dropping 2.8 percent and Shimano Inc tumbling 3 percent. "These are part of the stocks investors want to unload when uncertainty over Europe grows," said Naoki Fujiwara, a fund manager at Shinkin Asset Management. The heightened worries about Cyprus and risk of further problems for the euro zone have seen investors seek shelter in the safe-haven yen. That has put pressure on the Nikkei as investors fret the recent weakening trend in the yen may stall and undermine the export-driven economy. The dollar last traded at 94.94 yen, having fallen more than 1 percent from the previous day, while the euro traded at 122.60 yen, falling 1.4 percent. The European Union gave Cyprus till Monday to raise the billions of euros it needs to secure an international bailout. Failing that, it could face a collapse of its financial system that could push it out of the euro currency zone.. Further denting sentiment, Standard & Poor's cut Cyprus credit rating deeper into junk status and a survey showed the euro zone's economic downturn has deepened this month, even before Cyprus's bailout debacle. Stocks that benefited from the Japanese government's reflationary policy also lost ground, with Mitsubishi UFJ Financial Group falling 0.9 percent and Sumitomo Mitsui Financial Group shedding 1.0 percent. The broader Topix dropped 0.8 percent to 1,049.43. The Nikkei has gained 20 percent this year, and the yen has weakened 10 percent on the back of Prime Minister Shinzo Abe's bold fiscal expansionary and monetary easing policies aimed at ending persistent deflation and reviving the economy. On Thursday, new Bank of Japan governor Haruhiko Kuroda told a news conference further bold easing measures were needed to beat deflation. Analysts said that unless there is a new development, such as the BOJ calling an emergency meeting to discuss easing monetary policy before a regular rate review on April 3-4, big gains in the Nikkei are unlikely before the policy meeting. In the longer term, however, as the recovery in the U.S. economy gathers momentum, foreign investors are likely to pour more money into Japanese equities, analysts said. In the past 18 weeks through March 16, foreign investors bought 5.83 trillion yen worth of Japanese equities, versus 5.80 trillion yen in their 19 straight weeks of net buying from late 2005 to early 2006 when Junichiro Koizumi was the prime minister. "The Japanese market could add solid gains in the long run if the U.S. economy's recovery strengthens the dollar; then we may get similar rallies seen back in 2005-2006 if the dollar trades around 120 yen like it did at that time," said Michiro Naito, executive director of equity derivatives strategy at JPMorgan.