* Futures selling seen towards market close-analyst
* May has been worst performing month for hedge funds-analyst
* Energy, resource stocks down after declines in commodities
* Toyota jumps on output recovery
* Hitachi rises after strong earnings
By Ayai Tomisawa and Antoni Slodkowski
TOKYO, May 12 (Reuters) - Tokyo stocks fell on Thursday, led by declines in energy and commodity shares after sharp overnight falls in commodities prices, offsetting a strong performance by bellwether Toyota Motor Corp .
Analysts said a commodities rout was one of the reasons making hedge funds avoid risk assets, causing a sell-off in futures towards the market close.
"The market losses widened as there have been selling orders in futures contracts in the afternoon," said Hiroichi Nishi, general manager at SMBC Nikko Securities. "Not so big orders, but constant small orders ended up dragging down the whole market."
Market analysts also said May has been one of the worst months for the average hedge fund due to redemption timing.
"If their clients, who close their books in June, ask to redeem their funds, now is the timing," said Eiji Kinouchi, a chief technical analyst at Daiwa Securities Capital Markets.
On Thursday declines were led by trading houses such as Mitsubishi Corp , Japan's biggest commodity trader, and resource-related shares such as Inpex Corp , Japan's biggest oil and gas developer, with Mitsubishi shedding 2.0 percent and Inpex down 3.6 percent.
Toyota Motor Corp , the most actively traded share by turnover on the Tokyo bourse's main board, jumped 3.1 percent to 3,370 yen after saying output would begin recovering as much as two months earlier than it had previously expected as parts makers come back on line, offsetting poor quarterly earnings.
Toyota said it expects to give an earnings forecast by mid-June. [ID:nL3E7GB15A]
"The market is down on declines in commodities, but for now Toyota's performance is boosting investor confidence and if it stays strong it will give strong support to the market," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
The Nikkei fell 1.5 percent to 9,716.65 while the broader Topix index shed 1 percent to 849.34.
The market was trapped between two crucial technical levels, with support seen at its 25-day moving average of 9,689 while resistance loomed at its 200-day moving average of 9,823.
"Markets have become jittery after last week's slump in commodity prices and people are worried that the excess liquidity environment is about to end as the U.S. finishes its quantitative easing programme in June," added Akino.
RESOURCE STOCKS DOWN
Last Friday, the Nikkei fell 1.5 percent after a rout in commodities and analysts said the stock market would continue to be extremely vulnerable to moves on the commodities market.
"Another sell-off in commodities could be sparked by even the slightest negative factor and this poses a huge risk to all holders of risk assets, making them extremely nervous," said Hideyuki Ishiguro, a supervisor at Okasan Securities.
Japanese shares have lost some 7 percent since the March 11 earthquake, while Asian stocks outside Japan have gained more than 6 percent over the last two months.
Inpex fell 3.6 percent to 563,000 yen and JX Holdings dropped 2.5 percent to 537 yen, while Sumitomo Metal Mining lost 3.1 percent to 1,352 yen after gold, silver and crude oil prices dived on a much greater than expected easing in China's industrial output growth.
The mining subindex led decliners, shedding 3.2 percent.
Overseas investors bought a net 51.0 billion yen ($629 million) in Japanese stocks in the week to May 7 and bought a net 109.8 billion yen the week before that, remaining net buyers of Japanese equities for six straight weeks, government data showed on Thursday.
But Daiwa's Kinouchi said if investors avoid risk assets on falling commodity prices, "foreigners may stop buying stocks, including Japanese stocks."
Hitachi Ltd gained 2.4 percent to 462 yen in active trade after saying its fourth-quarter net profit quadrupled on cost cuts and booming demand for chip and construction equipment, but it gave no forecast for the new business year, citing uncertainties after the March earthquake. [ID:nL3E7GB18G]
"Hitachi and other major players didn't post outlooks for this year, but overall, looking at earnings, they're surprisingly positive. Despite the fact that companies didn't have to give forecasts, a bigger than expected number did, which helped the Nikkei stay relatively strong," said Okasan's Ishiguro.
Volume was moderate with 2.0 billion shares changing hands on the Tokyo stock exchange's first section, broadly in line with this week's daily volumes reaching around 2 billion shares a day. (Editing by Michael Watson)