By Aiko Hayashi TOKYO (Reuters) - Japan's Nikkei average sank 5.6 percent on Friday and erased more than half of its gains made this week, led lower by automakers such as Toyota Motor Corp after a plan to bail out U.S. carmakers failed in the Senate. The dollar dived to a 13-year low below 89.00 yen on the news that the bailout bill had stalled. That inflicted more pain on exporters, as a stronger yen curbs their overseas profits when they are repatriated. "It's a big shock to the stock and foreign exchange markets as the news gives you the impression that they (U.S. automakers) may need to file for Chapter 11, which would be the worst-case scenario," said Susumu Kato, chief economist at Calyon Capital Markets Japan. "As for the impact on the world economy, everyone has a common problem with falling consumption as well as the sluggish automobile sector. If the Big Three automakers actually go bankrupt, the impact will be very grave." Republican-brokered talks faltered, leaving the Senate at a dead end on an approach for extending $14 billion in loans to avert a threatened collapse of one or more automakers. The benchmark Nikkei closed down 484.68 points at 8,235.87, after sliding as much as 7.3 percent at one stage. It had been down 1.3 percent ahead of the news. Over the past four days, the Nikkei had rebounded over 10 percent, but after Friday's drop it ended up having added 4 percent on the week. The broader Topix lost 4.2 percent to 813.37. The dollar fell to 88.10 yen on trading platform EBS, the lowest since 1995. Still, some market players remained calm. "I'm not too pessimistic about the rejection of the bill because even if it had been approved, that wouldn't have solved the fundamental problems in the U.S. auto industry," said Junichi Misawa, a senior fund manager at STB Asset Management. "In the short term, though, the news is a sell factor because the market had risen on optimism that it was certain to have been passed. But I don't think this alone will change the direction of the market." Misawa said the benchmark Nikkei would likely trade between 7,500 yen and 9,500 in the near term, although moves would be volatile. AUTOMAKERS WOES Shares of Toyota, Nissan Motor Co and other Japanese carmakers plunged. Continued...

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