* Automakers, banks weigh on Nikkei * Domestic demand-related stocks up on bargain-hunting By Tomo Uetake TOKYO, Feb 27 (Reuters) - Japan's Nikkei average dropped for a second straight day on Wednesday as a pause in the yen's weakening after an inconclusive Italian election prompted investors to offload currency-sensitive stocks that have outperformed recently. The Nikkei lost 1.3 percent to 11,253.97 after shedding 2.3 percent on Tuesday on concerns that political deadlock following the Italian election could reignite the euro zone debt crisis. The benchmark ended at a 53-month high on Monday. The dollar was traded at 91.87 yen, not far from a one-month low of 90.85 touched on Monday on safe-haven flows to the Japanese currency in the aftermath of the inconclusive Italian vote. Comments from U.S. Federal Reserve Chairman Ben Bernanke on Tuesday helped alleviate some market concerns about an early end to the Fed's bond buying programme, which also somewhat cooled demand for the greenback. Automakers were sold off. Toyota Motor Corp, the most-traded stock on the mainboard by turnover, fell 2.5 percent, Subaru maker Fuji Heavy Industries Ltd dropped 3.3 percent and Honda Motor Co lost 2.5 percent. "Today's trading was characterised by sector rotation," said Naoki Fujiwara, chief fund manager at Shinkin Asset Management. "Investors, mainly the hot-money kind, offloaded currency-sensitive automakers while buying shares which have been underperforming, such as domestic demand-related stocks." Banks also lost ground, with Sumitomo Mitsui Financial Group down 3 percent and Mitsubishi UFJ Financial Group off 2.7 percent. The paper and pulp sector was the best sectoral performer, up 1.3 percent, while the construction sector rose 0.8 percent after the government on Tuesday passed a 13 trillion yen ($142 billion) supplementary budget for the year ending March 31 to finance economic stimulus. "The Japanese market has been outperforming its global peers since the beginning of this year," said a strategist at a European asset management firm. "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." The strategist said if the dollar held above 90 yen, the market may not fall sharply from the current level. The broad Topix lost 1.4 percent to 953.72, with 3.12 billion shares changing hands, down from Tuesday's 3.9 billion shares. Bucking the broad market, Jupiter Telecommunications Co surged 10.7 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 Nikkei is likely to stay direction-less for the moment. But if the yen weakens further, 95-96 yen or all the way towards 100 yen, the Nikkei would rise again and hit 12,000," said Kenichi Hirano, a market analyst at Tachibana Securities.