Nikkei sinks to 5-½ year low but pares losses

* Nikkei touches lowest point since May 2003

* Wave of late short-covering pares losses across the board

* Exporters battered as yen advances against dollar, euro

* Banks also weigh as economic gloom deepens

* After the close, Sony halves operating profit forecast (Adds Sony)

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 ...