* Mothers market rises to 3-1/2 week high as small caps seen safe haven - traders

* Toshiba soars after India nuclear plants deal

By Ayai Tomisawa

TOKYO, June 9 (Reuters) - Japan's Nikkei share average fell on Thursday as a strong yen soured the mood and dragged down large-cap shares.

Some small-cap stocks, seen as safe-haven assets for investors cautious before big macro events next week, attracted buyers.

The Nikkei shed 0.8 percent to 16,696.94 in mid-morning trade.

Major exporters lost ground after the dollar dipped 0.2 percent t 106.79 yen, moving back toward Monday's one-month low of 106.35.

Toyota Motor Corp and Honda Motor Co both dropped 1.2 percent, while Panasonic Corp stumbled 2.8 percent.

With major events such as policy meetings by the U.S. Federal Reserve and the Bank of Japan scheduled next week, many investors avoided taking large positions in the Nikkei although some investors took to buying small-cap shares.

"Theses stocks listed on the Mothers market are not vulnerable to a strong yen compared to Nikkei-listed stocks," said Yoshihiro Okumura, general manager at Chibagin Asset Management.

The Tokyo Stock Exchange's "Mothers market" for start-ups rose 1.3 percent to a 3-1/2 week high. Brangista Inc , which provides corporate promotional services, jumped 11 percent and biotechnology company Acucela Inc soared 18 percent.

After a weaker dollar lifted commodities such as crude oil, mining shares continued to attract buying, while airline stocks languished.

Inpex Corp rose 3 percent to more than a one-week high and Japan Petroleum Exploration Co jumped 3 percent to a one-week high.

Hit by worries about rising fuel charges, Japan Airlines Co fell 3.1 percent to hit the lowest since December 2014 and ANA Holdings Inc tumbled 2.0 percent to a two-month low.

Outperforming the market was Toshiba Corp, which jumped more than 5 percent. The U.S. and India agreed a deal on Tuesday for India to buy six nuclear reactors from Toshiba's Westinghouse Electric.

The broader Topix dropped 1.1 percent to 1,336.71 and the JPX-Nikkei Index 400 fell 1.2 percent to 12,033.85.

(Reporting by Ayai Tomisawa; Editing by Eric Meijer)