Financial crisis drives Nikkei to 5-year closing low

*Nikkei tumbles to 5-year closing low on financial crisis

*Exporters hit by global economic outlook, firm yen

*Australian rate cut sparks hopes for more global measures (Adds stocks, details)

By Aiko Hayashi

TOKYO, Oct 7 (Reuters) - Japan's Nikkei average fell 3 percent to post a five-year closing low on Tuesday as panic over the global financial crisis prompted investors to dump stocks.

The benchmark had fallen more than 5 percent in the morning but trimmed those losses on bargain hunting and after a rate cut by Australia's central bank raised hopes that more countries would take measures to contain the crisis.

A firm yen and the gloomy outlook for the global economy hurt exporters such as Canon Inc (7751.T: Quote, Profile, Research, Stock Buzz) and automakers, whose earnings have been badly undercut by worsening economies overseas. FXNEWS [FRX/]

"The market has been in panic since last week, and a lot of people are moving into cash," said Koichi Ogawa, chief portfolio manager at Daiwa Asset Management. "It's not really moving on sense, there are a lot of people who may have no choice but to sell."

The Nikkei .N225 shed 317.19 points to 10,155.90, the lowest close since December 2003. It earlier fell more than 5 percent to 9,916.21.

The broader Topix fell 2.2 percent to 977.61 after earlier also falling more than 5 percent.

U.S. stocks slid for a fourth straight day on Monday, pushing the Dow below 10,000 for the first time in four years, on fears the world was hurtling towards recession despite efforts to fight the fast-spreading financial crisis [.N]

"Once the market drops to this level, investors begin to expect governments will come up with some counter-measures," said Yoshinori Nagano, chief strategist at Daiwa Asset Management.

"As if to prove their expectations, Australia just cut interest rates by 1 percent and that gave the market hope that others might follow suit."

Australia's central bank chopped its benchmark interest rate by one full percentage point to 6.0 percent on Tuesday, taking a bold move to protect the domestic economy and banking system from an increasingly hostile global environment. [ID:nSYD359267]

While Japan has remained comparatively unscathed until now, policymakers admitted on Tuesday that the crisis is taking a toll, with Finance Minister Shoichi Nakagawa saying Japan's economy was worsening. [ID:nTKF003044]

Separately, Prime Minister Taro Aso said U.S. financial conditions were very severe, and Tokyo should be prepared for its impact on Japanese exports, which drive its economy.

Amid the market turmoil, the projected price-earnings ratio of the Nikkei stock average tumbled to a 37-year low at 12.78 times on Monday, according to the Nikkei business daily.

"Stocks may seem cheap with the Nikkei's PER below 13 times, but this alone won't prompt buying of Japanese stocks as the current market correction came from outside factors," said Yutaka Miura, senior technical analyst at Shinko Securities.

"U.S. and European stocks need to rise before Japanese stocks can go higher."

EXPORTERS DRAG

Honda Motor Corp (7267.T: Quote, Profile, Research, Stock Buzz) slid 5 percent to 2,570 yen and Toyota Motor Co (7203.T: Quote, Profile, Research, Stock Buzz) dropped 4.9 percent to 3,710 yen.

Canon dropped 4.1 percent to 3,530 yen and Kyocera Corp (6971.T: Quote, Profile, Research, Stock Buzz), hit by the double punch of the strong yen and a fall in its U.S. peers, lost 3.5 percent to 7,200 yen.

Sharp Corp (6753.T: Quote, Profile, Research, Stock Buzz) tumbled 9.3 percent to 910 yen after the consumer electronics maker cut its annual operating profit outlook by one-third due to sluggish domestic sales of mobile phones, missing market expectations by a wide margin. [ID:nT314929]

Individual Japanese investors were also fearful.

"There's no way I can predict what's going to happen next," said Tetsuo Kurosaki, a 59-year-old company executive. "The European market is also influenced and I bought products from there so I'm even more worried."

Trade picked up on the Tokyo exchange's first section, with 2.97 billion shares changing hands, compared with last week's daily average of 2.08 billion.

Declining stocks outpaced advancing ones by more than 4 to 1. (Editing by Edwina Gibbs) (Reporting by Aiko Hayashi; Additional reporting by Elaine Lies and Chika Osaka)