Japan's Nikkei stock average edged down 0.1 percent on Friday, with Canon Inc <7751.T> and other exporters hit by a stronger yen but defensive shares holding their own amid a sense the overall trend remains unchanged.
Support came from some high tech shares such as industrial robot maker Fanuc <6954.T>, which rose on short covering, though the sector was mixed overall.
The dollar fell as worries about U.S. debt levels grew after Standard & Poor's warned there was a 1 in 3 chance the U.K. could lose its precious triple-A credit rating because of the danger government debt may soar near 100 percent of GDP.
The move raised fears that the United States, with its increasing budget deficit and weakened economy, could face the same situation, sending the dollar and Wall Street lower.
Markets all around the world appear to be looking for direction, and any chance of a U.S. downgrade would really hit U.S. assets such as the dollar and stocks, said Masayoshi Okamoto, head of dealing at Jujiya Securities.
The benchmark Nikkei <.N225> shed 7.35 points to 9,256.80 after earlier losing as much as 1.5 percent, but at one point turning briefly positive amid a rise in other Asian shares. The broader Topix <.TOPX> fell 0.4 percent to 878.02.
The dollar was down 0.2 percent against the yen at 94.13 yen after earlier falling as low as 93.86 yen on electronic trading platform EBS.
But analysts in Tokyo said it was still too early to say the overall trend for the Nikkei has changed for the worse, noting that support near 9,000 -- around where the 25-day moving average comes in -- has held all week despite tests.
We're seeing some consolidation after the markets rose a bit too fast. What's been happening this week globally is that markets have gotten a bit of a reality check on the state of the overall economy, said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
The Nikkei trend is unlikely to change unless the dollar really falls against the yen, and even the 93-94 yen level might still be all right. But a fall down to 90 yen could be very bad. A stronger yen eats into exporters' profits when repatriated.
MSCI's measure of Asia Pacific stocks excluding Japan <.MSCIAPJ0000PUS> rose 0.3 percent.
Though off earlier lows, many exporters remained shaky.
Canon lost 1.2 percent to 3,190 yen and Toyota Motor Corp <7203.T> lost 1.9 percent to 3,580 yen, while Sony slipped 1.8 percent to 2,455 yen.
Honda Motor Co <7267.T>, though, turned positive, rising 1.3 percent to 2,680 yen.
Fanuc rose 1.9 percent to 7,650 yen and Tokyo Electron <8035.T> rose 1.6 percent to 4,450 yen, boosted by short covering. Kyocera Corp <6971.T> edged up 0.3 percent to 7,310 after starting the morning negative.
Shares of trading house Sumitomo Corp <8053.T> pared losses to 0.3 percent after the company said it had put on hold its plans to build and operate a $6 billion power and water desalination plant in Saudi Arabia.
Retailers gained, with Isetan Mitsukoshi <3099.T> rising 2.6 percent to 835 yen. Defensive shares such as Nippon Meat Packers <2282.T> also climbed.
Manufacturers of medical masks and the cloth used to make them extended their gains as the number of H1N1 flu cases increased in Japan, with Unitika <3103.T> up 1.1 percent to 94 yen and Shikibo <3109.T> climbing 1.6 percent to 193 yen.
Trade was light on the Tokyo exchange's first section, with 980 million shares changing hands, below last week's morning average of 1.2 billion.
Declining stocks outnumbered advancing ones, 834 to 660.
(Reporting by Elaine Lies; Editing by Hugh Lawson)