UPDATE 2-Toyota shares fall 5 percent on grim outlook

* Shares drop 5 pct vs benchmark Nikkei's 0.2 pct rise

* Uncertainty over cost cuts, markets turns off investors

* Analysts, investors see Toyota guidance as conservative

TOKYO, May 11 (Reuters) - Shares in Toyota Motor Corp (7203.T) slid 5 percent on Monday after the world's top car maker last week forecast a much bigger-than-expected $8.6 billion annual loss and said it would sell about 1 million fewer vehicles this year. [ID:nT285085]

The global crisis has hammered demand for cars, pushing U.S. rival Chrysler into bankruptcy and dragging Toyota down to its first operating loss for the year to March.

Analysts and investors said the Japanese autos giant was being too conservative in its forecasts, which were released after markets closed on Friday, but neither could they find a reason to buy shares straightaway as cars pile up in stockyards.

"We know that we've hit the bottom, but we have no way of knowing when things will pick up and by how much," said Akihiro Tsunoda, senior investment manager at Sompo Japan Asset Management.

"With so many uncertainties facing Toyota's cost cutting and marketing plans, it's hard to jump in again and start buying."

Toyota said on Friday it would slash its capital spending this year by more than a third, and put expansion projects on hold.

Since dipping to a six-year low at the year-end as a global market downturn bit, Toyota's shares, like its Japanese peers, have regained some ground, rising 30 percent in a near-8-week rally.

Down 28 percent from a year-ago and underperforming Honda Motor Co (7267.T), whose shares are just 10 percent shy of last May's levels, Toyota shares have outperformed Nissan's 46 percent fall and the Dow Jones U.S. Automobile Index .DJUSAU, which is trending to half what it was last year.

Toyota shares dropped as much as 5.5 percent, before closing down 190 yen, or 4.8 percent, at 3,790 yen, underperforming a 0.2 percent rise in the benchmark Nikkei share average .N225. It's depository receipts (TM.N) fell only 1.3 percent on Friday after the Toyota results and forecasts.

Toyota's guidance for a deeper loss would follow a $6.9 billion loss for January-March. Toyota also cut its annual dividend for the first time since at least 1994, when it changed its reporting period.

The maker of the Prius hybrid has been especially vulnerable to weak consumer appetite, due to its exposure to the United States and Japan, where sales have plunged to multi-decade lows.

"The forecast dampened investor appetite as they need to see the prospect for a V-shape recovery in the second-half of the business year in order to buy stocks," said Kenichi Hirano, operating officer at Tachibana Securities.

But while the mounting losses triggered the fall in Toyota's shares, Credit Suisse autos analyst Koji Endo said there was substantial potential for the firm to revise up its conservative earnings forecasts for the year to next March.

Toyota is still weak, compared to companies like Honda, which forecast a small profit this year, and Suzuki Motor Corp (7269.T), he said. Suzuki posted a quarterly profit on Monday and sees a profit this year. [ID:nT18748]

"Toyota's loss would not likely be as big as 850 billion yen as the company had forecast. We expect it to be 500 billion yen or so," he said. "Still, that's still in deep red." (Reporting by Mayumi Negishi, Sachi Izumi and Elaine Lies))