Nikkei drops 5 pct, posts biggest monthly fall ever

By Aiko Hayashi

TOKYO (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.

"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.