The bank's rights issue, which runs to January 27, is regarded as a litmus test of investor appetite for European banks, which must find 115 billion euros by June to shore up capital buffers to better withstand a euro zone debt crisis.
On Monday, when the capital increase started, the rights declined almost 65 percent and the shares fell 13 percent.
The drop highlights the difficulty some European lenders face recapitalizing, and contrasts with the smooth capital boost at Spanish group Santander
The shares and rights rebounded in a firmer banking sector on Tuesday, with some investors seeing the stock as attractive. But volumes were low and trading volatile, and uncertainty remained about what the bulk of investors will do.
UniCredit share price movements are violent. There is great volatility and there is still a long way to go, said Davide Manenti, asset manager at Italian broker Nuovi Investimenti.
Key UniCredit shareholders have said they would take up the rights. But I believe 20-25 percent of the rights could go on the market and lead to further declines, he said.
Manenti said a foreign investor could take advantage of the steep price fall to build up a stake.
By 1104 GMT, UniCredit shares were up 6.65 percent at 2.438 euros in a 2.4 percent firmer banking sector <.SX7P>. The rights
Fabrizio Bernardi, banking analyst at Fidentiis Equities, said: The rights price is going up today but there are a lot of investors out there, especially retail, that could drop them fast. I do not think the rights sell-off is over yet.
UniCredit is trading at under 0.3 times its intangible assets which is a very attractive valuation.
There are technical reasons not buy but at these prices the stock is sacrificed on a fundamentals level, Bernardi said.
On Monday the bank's Chief Executive Federico Ghizzoni defended the rights issue but said he had not expected such a sharp fall in the share price.
The bank is the first big lender to tap the market to repair its balance sheet since new capital targets were imposed by the European Banking Authority (EBA).
In the last four trading sessions the stock lost 45 percent and its market capitalization dived to 6.7 billion euros from 12.2 billion.
($1 = 0.7851 euro)
(Reporting by Danilo Masoni and Stephen Jewkes; Editing by Hans-Juergen Peters)