Nikkei at 5-½ yr low, hit by strong yen, Sony warning

*Nikkei closes down 9.6 percent at 5-½ year low

*Nikkei down 12 percent for week, 50 percent this year

*Dollar plunge to 13-year low versus yen hits exporters

*Sony tumbles more than 14 pct on profit warning (Updates with details)

By Elaine Lies

TOKYO, Oct 24 (Reuters) - Japan's Nikkei average slid 9.6 percent to a 5-½ year closing low on Friday, with exporters hit by the double punch of a Sony Corp (6758.T: Quote, Profile, Research, Stock Buzz) profit warning and a sharply higher yen.

The benchmark Nikkei lost 12 percent in the week and has fallen 50 percent so far this year.

Sony plunged more than 14 percent after the company halved its annual operating profit forecast by 57 percent to far below market estimates in its second downward revision this year, blaming a firmer yen and slowing demand for cameras and flat TVs. [ID:nT6579]

The Nikkei .N225 shed 811.90 points to close at 7,649.08, its lowest close since April 2003 and within a breath of the low that month of 7,603.76. Should it fall below that, it would be hitting levels not seen since 1982 -- the year Sony introduced the CD player.

The worst damage came from the yen's surge against the dollar and the euro, during which the dollar hit a 13-year low against the Japanese currency, falling below 95 yen and battering exporter shares.

"There's nothing we can do, investors may just have to suffer. Nobody wants to catch a falling knife," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"If you look at fundamentals like valuation, stocks are currently very cheap. But of course it's hard to predict earnings and when we get to this point, fear is spreading."

Market players said the yen's rapid advance was deepening pessimism about earnings just as Japan's results season gets into high gear, particularly as the yen has now strengthened beyond the currency rate assumed by most companies.

In the case of Sony, even its revised euro/yen rate of 140 yen for the October-March second half is still far from the current level, while it changed its dollar/yen assumption for the second half of the business year to 100 yen from 105 yen.

"The Sony warning showed that predictions for company earnings have been too optimistic, and now with the stronger yen the whole situation is becoming much worse," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.

"We can't expect much good news concerning companies, a situation that is setting off loss-cut sales, which are sparking still more selling in turn."

26-YEAR LEVELS?

Most market players thought the Nikkei was likely to bottom out at the 2003 low, but some said it might fall still more.

"What's really different from 2003 is that now the problem is global, and emerging markets aren't good either," Ogawa added.

But the market got some good news after the close, when JFE Holdings Inc (5411.T: Quote, Profile, Research, Stock Buzz), the world's third-biggest steelmaker, posted a 27 percent rise in quarterly profit and raised its full-year outlook on price hikes and lower raw materials costs [ID:nT44622].

Hitachi Ltd (6501.T: Quote, Profile, Research, Stock Buzz) revised its six-month group operating profit forecast up to 197 billion yen from 125 billion yen.

Shares of Sony lost 14.1 percent to 1,972 yen after the firm cut its operating profit forecast for the year through March to 200 billion yen ($2 billion), well short of the market consensus of 382 billion yen.

Tech firms also suffered, with Advantest Corp (6857.T: Quote, Profile, Research, Stock Buzz), the world's No.1 maker of chip testers, losing 11.9 percent to 1,148 yen and Kyocera Corp (6971.T: Quote, Profile, Research, Stock Buzz) shedding 11.3 percent to 5,200 yen. Industrial robot maker Fanuc (6954.T: Quote, Profile, Research, Stock Buzz) lost 16 percent.

Toyota Motor (7203.T: Quote, Profile, Research, Stock Buzz) dropped 6.4 percent to 3,200 yen after the Mainichi newspaper reported it would likely book an operating loss in North America for April-September in real terms excluding the impact of a gain in interest rate swaps.

A company source told Reuters earlier this month that Toyota was considering cutting its earnings outlook for the year to next March. [ID:nT352215] It will announce results on Nov. 6.

Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) slid 5.7 percent to 1,990 yen.

Trade picked up, with 2.64 billion shares changing hands on the Tokyo exchange's first section compared with last week's daily average of 2.44 billion.

Decliners outnumbered advancers by more than 12 to 1. (Additional reporting by Kiyoshi Takenaka; Editing by Hugh Lawson)