* Nikkei erases opening gains on selling in exporters, banks * Market cautious about uncertainty in Europe despite positive local factors - analyst By Ayai Tomisawa TOKYO, Feb 27 (Reuters) - Japan's Nikkei share average dropped on Wednesday, erasing earlier gains as selling in exporters and financials partially offset hopes for continuing U.S. Federal Reserve stimulus. The Nikkei dropped 0.8 percent to 11,310.45 by the midday break after opening a tad higher. The index fell 2.3 percent on Tuesday on concerns an inconclusive election in Italy could reignite the euro zone debt crisis, moving away from a 53-month high of 11,662.52 touched on Monday. U.S. stocks climbed on Tuesday as Federal Reserve Chairman Ben Bernanke strongly defended the Fed's bond-buying stimulus, easing worries that policymakers might be getting cold feet about continuing the extraordinary measures to support the economy. Analysts said trading may remain choppy as sentiment is divided between bulls who want to chase the market higher on ongoing hopes for monetary easing and those who are wary of the uncertainty in Europe. Investors are worried that renewed problems in the euro zone could drive the safe-haven yen higher and dent exporters. "The Japanese market has been outperforming its global peers since the beginning of this year. Although a weaker yen has served as a tailwind to Japanese stocks, we were reminded this week that the yen can still be bought as a safe haven currency when fears emerged on European debt issues," said a strategist at a European asset management firm. The dollar last traded at 91.77 yen, up from a one-month low of 90.85 touched on Monday on worries that the political deadlock in Italy could cause further instability in debt-stricken Europe. "If the dollar holds above 90 yen, the market may not fall sharply from the current line," the strategist said. The Nikkei has climbed 8.8 percent this year, while the Standard & Poor's 500 Index has gained 5.0 percent and the FTSEurofirst-300 index of top European shares has only added 1.4 percent. While Japanese shares were supported by hopes the government will nominate Asian Development Bank President Haruhiko Kuroda, an advocate of monetary easing as its next central bank chief, a correction may persist if the dollar hovers around the 92 yen-line, market observers said. The yen, which has declined about 20 percent against the dollar since November on Prime Minister Shinzo Abe's bold reflationary policies, skidded to a 33-month low on Monday, with the dollar reaching 94.77 yen. "Institutional investors are taking profits on automakers and financials which have gained sharply. Retail investors' selling on margin trade doesn't seem to have emerged yet, so selling overall is not heavy," said Yasuo Sakuma, portfolio manager at Bayview Asset Management. On Wednesday, Toyota Motor Corp dropped 2.0 percent, Honda Motor Co shed 1.9 percent and Nissan Motor Co fell 1.4 percent. Mitsubishi UFJ Financial Group fell 1.4 percent and Sumitomo Mitsui Financial Group dropped 1.6 percent. Bucking the broad market, Jupiter Telecommunications Co surged 11 percent after KDDI Corp and Sumitomo Corp raised the price of their tender offer to buy the cable service operator by 12 percent to 123,000 yen per share. The broader Topix dropped 0.7 percent to 959.58, erasing earlier gains. "Even if there are negative factors from overseas continuing to hurt sentiment, the Nikkei should be supported above its 25-day moving average (of 11,170) for the time being," said Yutaka Miura, a senior technical analyst at Mizuho Securities.