Nikkei down 0.8 pct as Toyota slides, yen weighs

(Updates to midmorning)

TOKYO, May 9 (Reuters) - Japan's Nikkei average fell 0.8 percent on Friday, dragged down by Toyota Motor (7203.T) after the world's biggest automaker forecast its first annual profit decline in seven years, while a stronger yen weighed on other exporters.

Olympus Corp (7733.T) plunged 7.2 percent to 3,210 yen, the biggest drag on the Nikkei 225, after Credit Suisse cut its rating to "neutral" from "outperform", saying the firm's earnings outlook was a negative surprise.

"Toyota's outlook is negative news for the overall auto industry. Investors have become wary about earnings by other automakers," said Katsuhiko Kodama, a senior strategist at Toyo Securities.

Toyota posted a bigger-than-expected 28 percent drop in quarterly net profit due to a stronger yen and sliding U.S. sales, and forecast its first annual profit decline in seven years. [ID:nT174049]

"The rebound in Japanese stocks on the view that they were undervalued is over for now. Investors don't want to keep buying to seek above 14,000 for the Nikkei average when it's trading at a price-earnings ratio of above 16 times," he said.

As of 0040 GMT, the benchmark Nikkei average .N225 was down 106.18 points at 13,837.08. It has gained nearly 20 percent from a year-low hit on March 17 on receding pessimism about the global credit crisis.

The broader TOPIX index shed 1 percent or 13.27 points to 1,359.68.

In New York on Thursday, the dollar eased 0.7 percent to 103.90 yen JPY=.

Toyota dropped 3.7 percent to 5,280 yen, while Honda Motor Co Ltd (7267.T) lost 2.4 percent to 3,260 yen and Nissan Motor Co Ltd (7201.T) slipped 1.3 percent to 948 yen.

Exporters generally came under pressure as investors fret over a stronger yen, as it eats into the value of exporters' overseas sales when translated back into the Japanese currency.

Canon Inc (7751.T) declined 2.6 percent to 5,260 yen and TDK Corp (6762.T) gave up 2.9 percent to 7,050 yen.

Toyota is now assuming an average exchange rate of 100 yen to the dollar and 155 yen to the euro EURJPY=R for this business year. The dollar averaged around 114 yen last year and the company says each 1 yen gain against the dollar cuts annual operating profit by about 40 billion yen.

One bright spot was Japan Tobacco Inc (2914.T), which jumped 5.5 percent to 501,000 yen, after the world's No. 3 tobacco maker said it may raise the price of domestic cigarettes to account for high raw materials costs and help offset sluggish demand. [ID:nT219763] (Reporting by Aiko Hayashi; Editing by Chris Gallagher)