Japan's Nikkei stock average rose 0.5 percent on Thursday, a day after closing at its lowest in nearly four months, with exporters leading the market higher after the dollar climbed above 93 yen for the first time in six weeks.
The weaker yen boosted tech shares such as Kyocera Corp <6971.T> as well, while automakers such as Honda Motor Co <7267.T> gained on short covering.
But investors remained wary due to deepening recession worries in the United States and Japan.
Everyone is gradually understanding just how serious the economic situation is in both countries, said Fujio Ando, senior managing director at Chibagin Asset Management.
There's also some disappointment in the market because (U.S. President Barack) Obama's housing plan doesn't appear to contain anything fresh.
Some said the benchmark Nikkei <.N225> could soon test the 26-year low of 6,994.90 hit in October.
You can't completely dismiss that possibility, said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.
The downside appears likely to hold for now at around 7,500, but if it falls through that there's not much to stop it. Still, there's not the same kind of worry about the U.S. financial system that there was last year, so sentiment is a bit different.
The dollar rose above 93 yen on Wednesday after Obama pledged up to $275 billion to stem U.S. home foreclosures, but the move was not enough to calm Wall Street fears about the housing market and economy, sending the S&P 500 and Nasdaq marginally lower while the Dow edged marginally higher.
Tokyo trade was muted, with many investors waiting to see the results of a two-day Bank of Japan policy meeting that ends later on Thursday in hopes of some sort of measures to ease corporate credit strains.
The BOJ is likely to keep interest rates unchanged but may extend its buying of commercial paper beyond March to support an economy mired in its deepest slump in more than three decades.
The Nikkei gained 37.93 points to 7,572.37 after closing on Wednesday at 7,534.44, its lowest point in nearly four months. The broader Topix <.TOPX> rose 0.4 percent to 752.35.
EXPORTERS EDGE HIGHER
Exporters in Tokyo rose as the dollar held well above 93 yen, even though at 93.67 it had edged down 0.1 percent.
Investors dislike a stronger yen because it eats into exporter profits when repatriated. Toyota Motor Corp <7203.T> gained 2.3 percent to 3,130 yen and Honda Motor Co <7267.T> rose 1.3 percent to 2,280. Canon gained 1.1 percent to 2,340 yen and Sony Corp <6758.T> rose 2.6 percent to 1,643 yen. Kyocera rose 3.1 percent to 5,910 yen and TDK Corp <6762.T> climbed 1.2 percent to 3,430 yen after their U.S. peers gained on bargain hunting as well as the weaker yen.
But Japan Airlines Corp <9205.T> dipped after the Nikkei business daily said the airline is in talks on securing up to $2.1 billion in government loans and may also tap a new government program that gives businesses capital infusions.
JAL spokesman Taro Namba said his firm was not in talks with authorities for loans. When asked if the airline was considering such loans, he said that nothing specific had been decided.
JAL lost 1.1 percent to 177 yen.
Chip-related shares fell after an industry group said the book-to-bill ratio for Japanese chip-making equipment stood at 0.55 in January, meaning that for every 100 yen of sales there were new orders worth 55 yen.
The figure was down from 0.70 the previous month, the Semiconductor Equipment Association of Japan said.
Advantest Corp <6857.T>, the world's biggest maker of semiconductor testers, slid 2 percent to 1,294 yen and Tokyo Electron <8035.T> shed 0.6 percent to 3,140 yen.
Trade was light on the Tokyo exchange's first section, with 872 million shares changing hands, compared with last week's morning average of 896 million.
Advancing stocks outnumbered declining ones, 800 to 741.
(Reporting by Elaine Lies; Editing by Hugh Lawson)