* Nikkei drops 1.3 pct, Topix down 1.1 pct * Firmer yen triggers profit-taking in exporters, financials * Toyota earnings fail to set market tone By Tomo Uetake TOKYO, Aug 5 (Reuters) - Japan's Nikkei share average fell on Monday morning as the yen's strength against the dollar prompted investors to lock-in profits after recent strong gains, with exporters particularly hard hit. The benchmark Nikkei, which rose 5.8 percent over the past two sessions, dropped 1.3 percent to 14,278.94 in mid-morning trade. "The Nikkei rallied on the back of a weak yen last week. So it's not a surprise to see some profit taking here as the yen strengthened (against the dollar)," said Masayuki Doshida, senior market analyst at Rakuten Securities. "Still, I think the market is holding up pretty well." A strong yen undermines Japanese exporters' competitiveness abroad and hurts profits when repatriated. Toyota Motor Corp, which reported its earnings after the market close on Friday, fell 0.6 percent in very choppy trade. It advanced as much as 1.1 percent in the opening session and was the most traded stock by turnover on the main board. "Although many investors had expected Toyota's earnings report to set the tone for market direction, that hasn't happened. The results have attracted mixed reactions from analysts," said Doshida. The world's best-selling carmaker took a cautious stance on its profit outlook, worried over currency moves and a slowdown in Thailand and other emerging markets, even as healthy earnings on overseas sales lifted it to a near-record quarterly profit. As the dollar's retreat against the yen weighed on market sentiment, many exporters succumbed to selling pressure, with Mazda Motor Corp falling 3.6 percent and Tokyo Electron Ltd down 2.8 percent. The greenback fell to a low of 98.66 yen after the U.S. jobs data was seen making the U.S. Federal Reserve more cautious about drawing down its huge economic stimulus programme. The pair last traded at 98.99 yen, according to EBS data. U.S. employers added 162,000 jobs in July, which was below the median forecast in a Reuters poll of 184,000. The broader Topix fell 1.1 percent to 1,182.75, with all of its 33 subsectors in negative territory. Other notable movers include Tokyo Tomin Bank and Yachiyo Bank Ltd, which jumped 9.6 percent and 13.5 percent respectively, after the Nikkei business daily reported the two regional banks have begun talks towards integrating operations around the fall of 2014. Market players said that investors also remained focused on corporate earnings. On Tuesday, Nippon Telegraph and Telephone Corp (NTT) is will report earnings after the market close. The Nikkei is up around 38 percent this year, underpinned by the Japanese government's sweeping stimulus policies aimed at pulling the world's third-largest economy out of its two-decade long slumber.