* Banks, autos underperform

* Stronger yen weighs on sentiment

* Toshiba rallies on Greenlight stake

* Takeda Pharmaceutical surges after U.S. court upholds patent

By Ayai Tomisawa

TOKYO, July 18 (Reuters) - Japan's Nikkei share average fell to a more than one-week low on Tuesday morning after cyclical stocks lost ground as a stronger yen hit sentiment, while Toshiba Corp rallied after news a U.S. hedge fund increased its stake in the tech company.

The Nikkei fell 0.7 percent to 19,988.69 in midmorning trade after the dollar dropped to trade at a two-week low of 112.13 yen, having lost steam after hitting a near four-month high of 114.495 a week ago.

The Nikkei hit as low as 19,943.14, the lowest level since July 7.

"U.S. yields seemed to have hit the ceiling and the dollar is weakening against the yen, and that's dragging down stocks," said Toru Ibayashi, executive director of Wealth Management at UBS Securities in Tokyo.

He also echoed investor concern over Federal Reserve Chair Janet Yellen's cautious stance on tightening in her congressional testimony last week as well as Friday's tame U.S. inflation data.

Shares in Toshiba jumped as much as 8.7 percent to 251.7 yen after U.S. hedge fund Greenlight Capital on Friday said it had added a stake. Meanwhile, Western Digital Corp failed to gain an immediate injunction to block the $18 billion sale of Toshiba's chip unit.

Greenlight Capital said that Toshiba may be worth as much as 400 yen per share once it resolves a legal dispute with Western Digital over the sale of its chip business.

Financial stocks lost ground, with the banking sector dropping 1.6 percent and the insurance sector shedding 1.0 percent.

Mitsubishi UFJ Financial Group tumbled 2.2 percent, Sumitomo Mitsui Financial Group fell 1.3 percent and T&D Holdings stumbled 2.4 percent.

Automakers weakened, with Toyota Motor Corp falling 1.2 percent and Honda Motor Co dropping 1.4 percent.

Bucking the trend, Takeda Pharmaceutical Co surged 2 percent after a U.S. court ruled that a patent on Takeda Pharmaceutical's cancer treatment Velcade is valid.

The broader Topix dropped 0.6 percent to 1,616.34 and the JPX-Nikkei Index 400 fell 0.6 percent to 14,382.28. (Editing by Sam Holmes)