By Elaine Lies TOKYO, Oct 23 (Reuters) - Japan's Nikkei average hit its lowest point since May 2003 on Thursday then pared its losses to end down 2.5 percent on a report that the U.S. administration may consider a $40 billion plan to help stop housing foreclosures. Honda Motor Corp (7267.T: Quote, Profile, Research, Stock Buzz) and other exporters dragged on the market as the yen climbed against the dollar and the euro on growing worries about the global economy, while bank shares such as Mizuho Financial Group (8411.T: Quote, Profile, Research, Stock Buzz) were also battered. The Wall Street Journal said Federal Deposit Insurance Corp Chairman Sheila Bair is expected to suggest in a Senate Banking Committee on Thursday that the government give banks incentives to turn troubled loans into more affordable mortgages, according to a person familiar with her testimony. [ID:nBNG389655] The report sparked buying of U.S. stock futures,SPc1 which in turn set off short-covering in Nikkei futures JNIc1 and helped the cash market trim losses, market players said. The benchmark Nikkei shed 213.71 points to 8,460.98 after earlier falling as low as 8,016.61, its lowest in nearly five and a half years and down more than 7 percent. It has lost 25 percent this month. The broader Topix ended the day down 2 percent at 871.70 after earlier falling more than 6 percent. "Given the sharp falls in U.S. stocks, it wouldn't be surprising for a report like this to be used as reason for a rebound there," said Masayoshi Okamoto, head of dealing at Jujiya Securities. "But it's hard to know what further land mines may lie ahead. If there'd only been one that'd be one thing, but they've been exploding all over the place." Other market players were similarly wary, particularly after the dollar hit a seven-month low against the yen as deepening concerns about the global economy prompted institutional investors to dump risky overseas assets, while the euro hit a six-year low against the Japanese currency. "The stronger yen is really a manifestation of a much bigger issue -- the prospect of a deep recession," said Norihiro Fujito, general manager at the investment research and information division of Mitsubishi UFJ Securities. "A particular worry for Japanese exporters is the prospect that emerging markets, which were growing so strongly, now appear to have reversed into a shrinking trend -- and this will hit the earnings of Japanese companies far into the future, not just for the current financial year but the one beyond." EXPORTERS, BANKS After the close, Sony Corp (6758.T: Quote, Profile, Research, Stock Buzz) cut its annual operating profit forecast by 57 percent to far below market expectations, battered by a firmer yen and fierce price competition in the LCD TV, digital camera and camcorder markets. [ID:nT6579] Sony now expects operating profit of 200 billion yen ($2 billion) for the year ending next March, down from its previous projection of 470 billion yen and compared with a consensus of 381.8 billion yen in a poll of 20 analysts by Reuters Estimates. Japan's exports grew only slightly in September from a year earlier as the spreading effects of the global financial crisis took their toll on demand for Japanese goods. [ID:nT148498] Mizuho Financial Group was hammered after a newspaper said the bank, Japan's second-largest, may delay planned share buybacks to preserve capital in the face of global financial turmoil and sliding profits [ID:nT23771]. Mizuho slid 7.5 percent to 309,000 yen after earlier falling more than 12 percent. Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research, Stock Buzz), Japan's largest bank, slid 3.8 percent to 745 yen and Sumitomo Mitsui Financial Group (8316.T: Quote, Profile, Research, Stock Buzz) fell 4.2 percent to 484,000 yen. Honda fell 6.6 percent to 2,110 yen and Canon Inc (7751.T: Quote, Profile, Research, Stock Buzz) dropped 6.2 percent to 3,050 yen. A rare bright spot was KDDI Corp (9433.T: Quote, Profile, Research, Stock Buzz) after the Japanese phone operator reported a 27 percent gain in quarterly profit on lower handset subsidies and kept its full-year forecast, underscoring its relatively stable earnings profile. [ID:nT339901] Shares of KDDI jumped 6.3 percent to 558,000 yen to become the top positive contributor to the Nikkei 225. Trade picked up on the Tokyo exchange's first section, with 2.8 billion shares changing hands, compared with last week's daily average of 2.4 billion. Declining stocks outpaced advancing ones by more than 2 to 1. (Reporting by Elaine Lies)

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