* Real estate stocks, food makers underperform

* Mining shares rise on higher oil prices

By Ayai Tomisawa

TOKYO, Aug 16 (Reuters) - Japan's Nikkei share average edged down on Tuesday morning as weakness in domestic demand-driven stocks offset gains in cyclicals such as exporters in a relatively quiet holiday-thinned market.

The Nikkei dropped 0.2 percent to 16,837.98 in midmorning trade.

Traders said that with many investors away for Japan's 'bon' holidays, activity will likely be subdued again. On Monday, trading volume stood at only 1.24 billion shares on the broader market, the lowest level since April 2014.

The downside for the broader market, however, will likely be limited thanks to strong performances in overseas stocks, they said.

"Global investors seem to have turned 'risk on', but the yen has been on the strong side so people are cautious about investing in Japanese stocks for now," said Isao Kubo, an equity strategist at Nissay Asset Management, referring to rallies in Wall Street where three major U.S. stock indexes ended at all-time highs on Monday.

He expects the Nikkei to track a narrow range pending fresh catalysts.

"Whether the U.S. economy is strong enough to withstand a rate hike is one thing the market is focused on," Kubo said, adding that investors will continue to monitor the currency market.

The dollar was flat at 101.250 yen after spending the previous day stuck between 101.460 and 100.870.

On Tuesday, cyclical stocks such as exporters and banks staged a rally, while domestic demand-linked stocks such as real estate and food processors lost ground.

Toyota Motor Corp gained 0.8 percent, Panasonic Corp rose 1.0 percent, Mitsubishi UFJ Financial Group added 0.6 percent and Sumitomo Mitsui Financial Group advanced 1.0 percent.

On the other hand, Mitsubishi Estate Co shed 1.2 percent and Mitsui Fudosan Co declined 1.4 percent, while Ajinomoto Co dropped 1.1 percent and Kikkoman Corp fell 1.5 percent.

Mining shares were bought, with Inpex Corp rising 2.3 percent and Japan Petroleum Exploration Co gaining 1.3 percent after oil prices hit five-week highs on Monday.

The broader Topix shed 0.1 percent to 1,315.94 and the JPX-Nikkei Index 400 dropped 0.1 percent to 11,839.00.

(Editing by Shri Navaratnam)