Nikkei slips 0.5 pct in day of roller-coaster trade

*Nikkei at new 5-year closing low, wipes out earlier gains

*Expectations for new policies war with fears for economy

*Broader Topix index ends up 0.7 percent

*Retailers battered after Aeon loss, exporters gain (Adds details, stocks)

By Elaine Lies

TOKYO, Oct 9 (Reuters) - Japan's Nikkei stock average fell 0.5 percent on Thursday to its lowest close in more than 5 years amid volatile trade, with hopes for new policy steps to contain the financial crisis warring with concerns over the global economy.

The Nikkei failed to gain ground despite coordinated worldwide interest rate cuts on Wednesday, which came after it tumbled 9.4 percent in its biggest one-day loss since the 1987 stock market crash, with Tokyo shares shedding $250 billion of their value.

Retailers languished in the wake of gloomy results from Aeon Co , which fell more than 10 percent, but Canon Inc and other exporters managed to gain on short-covering and bargain hunting.

Shares briefly surged more than 2 percent after a New York Times report that the U.S. Treasury Department was considering taking stakes in many U.S. banks to address concerns that banks have about lending to one another and to other customers . The benchmark Nikkei .N225 fell 0.5 percent to its lowest close since June 2003, shedding 45.83 points to 9,157.49. The broader Topix finished up 0.7 percent at 905.11 after earlier rising more than 3 percent.

Many said the market could no longer rise on hope alone, with even the possible U.S. Treasury bank stake move doubtful given the fact that the administration of U.S. President George W. Bush has only a few more months left in office.

"There are a lot of expectations, but unless they're backed by concrete action, nothing positive will be expressed in the market," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

Others agreed. "Even if the authorities do manage to ease worry about the financial crisis and the crisis of confidence, worry about the economy will still remain and market attention will shift to that," said Nagayuki Yamagishi, strategist at Mitsubishi UFJ Securities.

RETAILERS RETREAT

Retailer stocks were battered after Aeon, Japan's second-largest retailer, booked a first-half net loss for the first time in three years after writing down the value of stores and other assets as it faces weak consumer spending and a slowing economy.

Aeon lost 10.5 percent to close at 850 yen, Fast Retailing dropped 7.3 percent to 9,560 yen, while Seven & I Holdings , Japan's largest retailer, fell 8.4 percent to 2,410 yen in a sign of growing consumer gloom.

After the market closed, Seven & I said its first-half operating profit rose 2.8 percent, lifted by strong growth in its convenience store business, and it stuck to its full-year outlook.

Fast Retailing, which operates the Uniqlo casual clothing chain, said its 2008/08 group operating profit had soared 34.7 percent.

"Stock prices are falling and I worry about our savings. Food prices are high and there are food safety worries," said Kyoko Okada, 38, mother of a 1-year-old child.

"Everything makes me feel bad," she added, although she said she was not holding back on spending yet.

Canon rose 4.1 percent to 3,330 yen and Kyocera Corp rose 2 percent to 6,530 yen, putting both among the top contributors to the Nikkei. Sony Corp rose 5.7 percent to 2,520 yen.

Sony said on Thursday it would launch PlayStation 3 game consoles with an 80 gigabyte hard disk drive, bigger than previous models, in Japan at the end of October for 39,980 yen ($398).

Trade was active on the Tokyo exchange's first section, with 2.9 billion shares, compared with last week's daily average of 2.1 billion. Advancing stocks beat declining ones, 980 to 656. (Additional reporting by Linda Sieg; Editing by Hugh Lawson)