* Financials still weigh, but some banks up on short-covering
* Trade cautious on policy uncertainty, before 5-day weekend
By Elaine Lies
TOKYO, Sept 18 (Reuters) - Japan's Nikkei stock average slipped 0.9 percent on Friday, with financial stocks falling after consumer finance firm Aiful Corp said it was asking for debt repayments to be rescheduled.
Trade was cautious ahead of a five-day holiday in Japan from Sept. 19-23 and after the Nikkei finished above its 25-day moving average the previous day, market players said.
"A lot of investors are adjusting their positions ahead of the long weekend, with both profit-taking and short-covering emerging depending on individual shares and how they have behaved recently," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management. The benchmark Nikkei pared its losses to 88.34 points or 10,355.46 after falling as much as 1.4 percent during the morning. The broader Topix lost 0.6 percent to 934.10.
The Aiful news caught financial stocks at a vulnerable time.
The new government's minister for banking, Shizuka Kamei, said this week he would like to introduce a moratorium on some loan repayments to help small and midsized businesses and individuals struggling from the economic downturn, sending bank shares lower.
"Investors don't really want to touch financial shares. The Aiful news came as a slight shock ... and added to uncertainty in the sector that already existed about the new government's policies," said Kenichi Hirano, operating office at Tachibana Securities.
Aiful was untraded due to a glut of sell orders at 134 yen, down 27.2 percent from Thursday's close after saying it would ask creditors to push back repayments on about $3 billion in debt as it faces difficulty raising funds and plans for more restructuring.
Rival lenders Promise Co Ltd fell 4.5 percent to 578 yen and Takefuji Corp sank 8.6 percent to 424 yen, though both were off earlier lows.
Shares in Aiful's main creditors Sumitomo Trust and Banking Co shed 1.5 percent to 470 yen, and Aozora Bank lost 2.2 percent to 132 yen.
But Mitsubishi UFJ Financial Group rose in later trade on short-covering after several days of losses.
MUFG climbed 1 percent to 520 yen, while No. 3 bank Sumitomo Mitsui Financial Group rose 0.9 percent to 3,390 yen.
Exporters remained under pressure, with TDK Corp down 1.9 percent to 5,670 yen and Kyocera Corp down 1.2 percent to 8,050 yen.
But a few, such as Advantest Corp, reversed course from the morning to climb 1 percent to 2,435 yen.
Japanese retail investor sentiment towards domestic stocks slid in September from a month earlier, as a stronger yen increased concerns about the outlook for the nation's export-led economy, a Reuters survey showed on Friday. (Additional reporting by Aiko Hayashi; Editing by Edwina Gibbs)