``The market lacked the energy to break the 14,500 level to begin with, and then pre-weekend position-squaring pulled down the Nikkei average,'' said Hiroshi Arano, general manager at Dai-Ichi Kangyo Asahi Asset Management Co Ltd.

The dollar's recovery against the yen momentarily lifted shares in export manufacturers, but the effect waned by the close of trading. Visiting US deputy treasury secretary Lawrence Summers had told a news conference around midday that a weak yen should not be used as a substitute for policies to promote economic growth.

In Hong Kong, shares closed sharply higher as blue chips rallied on reports Walt Disney Co is moving closer tochoosing the territory as a site for a new theme park. The Hang Seng Index surged 2.08 per cent to finish at 9,858.49 after trading between 9,891.62 and 9,741.80. Seoul shares finished 4.19 per cent higher at 520.06 points.

Brokers said signs labour-related problems were stabilising fuelled investors' interest in buying stocks. Australian shares closed 0.86 percent lower at 2,879.9 points, after a 0.35-per cent fall by the Dow Jones index and jitters in the bond market dampened investor sentiment.