TOKYO, May 15 (Reuters) - Japan's Nikkei share average

dropped for a second day on Thursday, extending its retreat from

a nearly three-month peak, as a stronger yen sent automaker

shares sliding.

The Nikkei sank 1.1% to 37,705.74 as of the midday

recess, as the yen strengthened for a third day, eroding the

value of Japanese exporters' overseas revenues.

Japan's benchmark index had rallied 25% between a low on

April 7 and the high on Tuesday, partly as optimism built for a

spate of U.S. trade deals that would remove the risk of a global

recession.

The broader Topix fell 1% on Thursday, also a second

session of losses.

"The run-up in the Nikkei had been very fast, and we're

still at a very high level," said Maki Sawada, a strategist at

Nomura.

"Investors are cautious that there is still a degree of

overheating in the market."

Transport equipment was the worst performer among

the Tokyo Stock Exchange's industry groupings, dropping 2.6%.

Toyota ( TM ) and Honda ( HMC ) each tumbled 3.2%, and

Nissan ( NSANF ) slumped 3.4%.

Electronics exporters were also weak, with Sony ( SONY )

losing 3.8% and Nintendo ( NTDOF ) slipping 2.7%.

Chip shares declined. Advantest ( ADTTF ) was off 1.8% and

Tokyo Electron ( TOELF ) eased 1%.

Uniqlo owner Fast Retailing ( FRCOF ) fell 2% to be the

biggest points drag on the Nikkei due to its heavy weighting.

Of the Nikkei's 225 components, 172 fell and 53 rose.

Shipping was a bright spot, jumping 2.5% to be

far and away the best performing TSE industry sector, as a thaw

in Sino-U.S. trade relations boosted the outlook for cargo

traffic.