Japanese stocks bucked a regional downward trend on Friday as exporters rose on the back of the weaker yen and defensive stocks made gains.

The Nikkei 225 gained 2.8 per cent to 8,693.82, heading for a weekly gain of more than 4 per cent, while the broader Topix was 3.4 per cent higher at 894.29. On Thursday the market logged its biggest one-day decline since 1987.

The yen was weaker during trading hours, although it strengthened later in the afternoon. The weakness helped exporters claw back some losses.

KDDI led the Nikkei higher with a 7.1 per cent gain to Y545,000. Astellas Pharma rose 9 per cent to Y3,860. NTT Data increased 7.1 per cent to Y333,000.

Canon gained 5.7 per cent to Y3,180 and Sony rose 5.2 per cent to Y2,440. Nintendo bucked the trend with a 4.3 per cent decline to Y33,650.

Korean stocks continued their descent with a 2.7 per cent decline to 1,180.67, hitting a new three-year low as banking shares declined, following Standard & Poor's decision yesterday to put seven Korean banks on its negative watch list citing growing foreign currency funding pressure.

Shinhan Financial dropped 8.8 per cent to Won33,700 and KB Financial fell 12.4 per cent to Won38,000.

Elsewhere, major markets were mixed. Investors remained extremely cautious about the outlook for the global economy and further news of government plans to strengthen financial sectors.

In Switzerland, the government moved to restore confidence in the country's banking system, saying it will fund a vehicle that would take on most of the toxic debts held by UBS and injecting about $5.3bn to help recapitalise the bank.

Meanwhile, Credit Suisse raised SFr10bn from investors including the Qatar Investment Authority.

In Hong Kong, the Hang Seng flitted between positive and negative territory before closing down 4.4 per cent at 14,554.21, while the sub index of mainland Chinese companies dropped 4.8 per cent to 7,007.53.

Shares in Shanghai gained 1.1 per cent gain to 1,930.651, while in Singapore shares dropped 3.7 per cent to 1,878.51.

The S&P 500 closed 4.3 per cent higher after a late rally, having spent most of the session in negative territory. Futures were trading 2.4 per cent down at 918.90, after earlier trading higher.

There were banks earnings to digest in the US, with Merrill Lynch reporting a worse-than-expected loss mainly on writedowns and credit losses. Citigroup also reported a net loss, mainly due to weakness in the US economy and declining performance in the bank's credit card division.

Merrill's chairman and chief executive John Thain said he was beginning to see a "significant contraction" in US economic activity, which was likely to affect growth globally.

Banking stocks were mixed across the Asia-Pacific region, with Australian banks trading lower, while Japanese banks managed to claw back some of yesterday's losses.

National Australia Bank fell 4.9 per cent to A$21.60, while Macquarie Group lost 2.2 per cent to A$31.36 and Commonwealth Bank of Australia fell 2.3 per cent to A$41.41.

The Sensex opened for trading in Mumbai up 1.6 per cent before dropping back to fall 5.7 per cent to 9,975.35.