TOKYO, Feb 7 (Reuters) - Japan's Nikkei share average

fell on Friday as a stronger yen dampened appetite. However,

investors scooped up stocks with a strong outlook, capping

declines.

The Nikkei had dropped 0.4% to 38,899.19 as of 0205

GMT and was set to lose 1.7% for the week.

The broader Topix slipped 0.37% to 2,742.11.

"With the yen on the rise, the market was worried that the

Japanese firms' earnings next (fiscal) year would not be as

strong as this year," said Shigetoshi Kamada, general manager at

the research department at Tachibana Securities.

The yen climbed to a nine-week high as market players piled

on bets for more interest rate hikes by the Bank of Japan this

year.

A stronger Japanese currency tends to hurt exporters' shares

as it decreases the value of overseas profits in yen terms when

firms repatriate them to Japan.

Investors also sold stocks as the market has run out of

positive cues after Japan's quarterly earnings season peaked.

"We have seen a series of robust outcomes for the third

quarter. With only one more quarter remaining, investors expect

little positive surprises for the full year," Kamada said.

Tokyo Electron ( TOELF ) slipped 3.9% to drag the Nikkei the

most, even as the chip-making equipment maker said that

operating income in the third quarter rose 50.7% from a year

earlier.

Nikon ( NINOF ) fell 4.99% after the camera maker lowered its

annual operating profit outlook.

Among the rising stocks, Mercari ( MRCIF ) surged 21%, the

highest daily limit, after the flea market app operator reported

operating profit for the December quarter ahead of market

consensus.

Kao rose 4.3% after the cosmetics maker raised its

annual net profit forecast to 116 billion yen ($765.9 million),

up 7.6% from the previous year.

($1=151.4600 yen)