Nikkei drops 5 pct, posts biggest monthly fall ever

* Nikkei drops 5 pct, logs biggest monthly fall ever

* Investors dump stocks before long weekend, on profit-taking

* Automakers hurt by deteriorating earnings prospects

* BOJ rate cut welcomed, but had little impact on Friday (Adds stocks, details, Nissan results)

By Aiko Hayashi

TOKYO, Oct 31 (Reuters) - The Nikkei average slid 5 percent on Friday, capping its worst month ever, as investors dumped stocks at the last minute on caution before a three-day weekend, with little impact felt from a rate cut by the Bank of Japan.

The benchmark ended the month of October down 24 percent, its biggest monthly fall in its 58-year history as fears over a global recession battered investor willingness to take on riskier assets.

Market players also said short-term profit taking was inevitable after the Nikkei gained nearly 30 percent in the three-day rally to Thursday.

Automakers skidded on worries about their earnings prospects, after downward revisions including one from Mazda Motor Corp (7261.T: Quote, Profile, Research, Stock Buzz).

"Investors buying futures seem to have let go of stocks just minutes before the close because this is before a big holiday and we have no idea what could happen on Monday," said Masaru Hamasaki, a senior strategist at Toyota Asset Management.

Japanese markets will be closed on Monday for a holiday. On a long weekend in September, Lehman Brothers collapsed.

The Bank of Japan trimmed its key interest rate to 0.3 percent from a decade-high 0.5 percent on Friday, though the cut was by a split vote and was smaller than 0.25 percent as widely expected by the market.

"Rate cuts are positive for stocks, and the market welcomed the move. I don't think the market cares too much about a 5 basis point difference," said Hamasaki.

The BOJ move came under government pressure to join the global response to the worst financial crisis in 80 years. [ID:nT242225]

China, Hong Kong and Taiwan also cut rates this week, with the European Central Bank and Australia seen following suit next week, in the midst of a sharp deterioration in major economies. [ID:nLU504777]

The benchmark Nikkei .N225 lost 452.78 points to close at the day's low of 8,576.98. So far this year, it is down 44 percent, though it has gained 12 percent on the week.

The broader Topix .TOPX shed 3.6 percent to 867.12.

Declining shares outpaced advancing ones, 892 to 750.

Trade was active on the Tokyo exchange's first section, with 2.78 billion shares changing hands, above last week's daily average of 2.38 billion.

AUTOMAKERS HURT

"Although everyone is being under pressure, investors tend to think the auto sector is in a particularly tough spot," said Yoshinori Nagano, a chief strategist at Daiwa Asset Management.

"It's hard to expect this sector to outperform the overall market even if the market rebounds."

Mazda and Mitsubishi Motors Corp (7211.T: Quote, Profile, Research, Stock Buzz) lowered their profit forecasts on Thursday, joining Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) in predicting bigger falls in profits this year.

Shares of Mazda tumbled 13.8 percent to 213 yen, while Mitsubishi Motors gained 1.5 percent to 134 yen.

Honda lost 13 percent to 2,400 yen and Toyota Motor Co (7203.T: Quote, Profile, Research, Stock Buzz) slid 4.4 percent to 3,730 yen.

After the close, Nissan Motor Co (7201.T: Quote, Profile, Research, Stock Buzz) halved its full-year profit forecast in the face of a rising yen, sinking demand in the key U.S. market and a broad-based slowdown in the coming quarters. [ID:nT265632]

Before reporting results, shares of Nissan ended down 8.4 percent to 493 yen.

Shares of Mitsubishi Corp (8058.T: Quote, Profile, Research, Stock Buzz) fell 11.1 percent to 1,603 yen after Japan's largest trading house cut its net profit forecast for the year to next March by 10 percent, citing lower commodities prices, losses on its shareholdings and a firmer yen. [ID:nT239163] (Reporting by Aiko Hayashi; Editing by Edwina Gibbs)