Japan's Nikkei average trimmed losses to 0.4 percent on Tuesday after hitting a four-month low earlier, as investors picked up beaten-down shares such as Sony Corp (6758.T).
Although the benchmark briefly turned positive in afternoon trade, it hovered just short of a 26-year low amid worries about the U.S. financial system that sent U.S. stocks to 12-year lows on Monday, with insurer AIG (AIG.N) posting a record loss. .N
Mitsubishi Corp (8058.T) and other trading houses skidded after oil tumbled 10 percent on Monday, while Astellas Pharma (4503.T) slid after saying it had scrapped a licensing agreement with a Neurosearch A/S (NEUR.CO) unit on a drug to treat schizophrenia.
"The 7,000 mark for the Nikkei and 700 for the Topix are the levels at which investors start thinking stocks are undervalued, particularly considering companies' profitability in the mid to long term," said Junichi Misawa, a senior fund manager at STB Asset Management.
"Also fortunately, despite dismal performances on Wall Street, the dollar hasn't weakened due to risk aversion, and that is helping out exporters' shares here."
The benchmark Nikkei .N225 declined 25.41 points to 7,254.74, after briefly turning positive.
It slid as low as 7,088.47 during morning trade -- a level unseen since a 26-year low of 6,994.90 hit on October 28.
The broader Topix slipped 0.9 percent to 727.73 after briefly hitting a 25-year low.
Markt players said a comment by Finance Minister Kaoru Yosano on Tuesday was seen positive but not enough to help push up the market.
Yosano said the government would use some of Japan's large foreign exchange reserves to ease a squeeze in corporate finance, as the annual balance date looms for many Japanese companies.
Japan's government said last week it was looking at ways to support the stock market that could include setting up a share-buying agency as happened in the mid-1960s.
Oil-linked shares slid after oil tumbled over 10 percent on Monday as the deepening global recession threatened to crimp energy demand further, outweighing OPEC's strong compliance with supply curbs.
Mitsubishi, Japan's largest trading house, lost 2.6 percent to 1,144 yen and Marubeni Corp (8002.T) dropped 4 percent to 286 yen. Oil and gas field developer Inpex (1605.T) lost 5.1 percent to 593,000 yen.
Astellas shares shed 1.9 percent to 3,100 yen.
But some battered exporter shares gained ground, with Sony jumping 3.3 percent to 1,714 yen and Advantest Corp (6857.T) adding 1.2 percent to 1,214 yen.
Suzuki Motor Corp (7269.T) climbed 2.8 percent to 1,549 yen after Maruti Suzuki India Ltd (MRTI.BO), in which Suzuki owns 54.2 percent, increased sales by nearly a quarter in February from a year before, defying a broad downward trend in the industry.
