Japanese stocks hit their lowest close in a week after earlier falling by nearly 3 percent as a strong yen sparked sales of exporters such as Sony Corp after fears about the U.S. economy set off a Wall Street tumble.

A few shares, such as Isuzu Motors Ltd, bucked the trend, but this was due more to individual factors -- in the case of Isuzu, upbeat mid-term financial targets -- than anything else as a wait-and-see mood spread in the market with investors turning their eyes to U.S. trading later in the day.

The yen extended its gains against the dollar as wary investors were prompted to cut back on risky positions, but a slowing of its climb in the afternoon helped stocks recoup some losses, said Yutaka Shiraki, a senior strategist at Mitsubishi UFJ Securities.

Though Japanese stocks were falling largely on the influence of Wall Street, some people -- me among them -- feel that this was a bit extreme, and this led to some buying back, but there were no other real factors.

Activity slowed towards the end of the session amid a dearth of trading incentives, concern about the yen, and wariness ahead of U.S. trade.

We tested the downside today and it held, but given that the yen could still fall more, there's no guarantee that we won't see more selling this week, Shiraki added.

The benchmark Nikkei average lost 274.66 points or 1.69 percent to 16,012.83. It hit a low of 15,830.28 just after the afternoon session began, the lowest since August 22. The Nikkei's lowest point this year was 15,262.10 on August 17.

The broad TOPIX index ended down 1.7 percent at 1,557.55 after sliding 3 percent during the morning session, also hitting the lowest point since August 22.

Trade picked up somewhat with 1.7 billion shares changing hands on the Tokyo exchange's first section. That compares with Tuesday's daily volume of 1.3 billion shares, the lowest volume since December 25.

Declining stocks swept past advancing ones by a ratio of nearly nine to one.

EXPORTERS, FINANCIAL FIRMS DOWN

The strong yen prompted sales of exporters out of concern for their profits, with Sony Corp (6758.T: Quote, Profile, Research) down by 2.8 percent at 5,230 yen, Hitachi down 2.4 percent at 735 yen and Canon Inc sliding by 2.1 percent to 6,400 yen.

Financial stocks also took a hit after their U.S. counterparts tumbled on a Merrill Lynch warning that ailing credit markets will hurt bank profits.

Sumitomo Mitsui Financial Group slid 1.3 percent to 890,000 yen while Mitsubishi UFJ Financial Group was down 1 percent at 1.1 million yen.

One of the day's standouts was Isuzu, which ended up by 4.4 percent at 598 yen after the Japanese truck maker said it aims to increase operating profit by 40 percent by 2011 as it expands sales overseas and slashes costs through stepped-up cooperation with other automakers.

After the market closed, General Motors Corp and Isuzu said they would work together more closely in South America, possibly through a joint venture, to boost truck sales in the fast-growing region.

Electronic parts maker TDK Corp said it would buy 74.3 percent of Thailand-based Magnecomp Precision Technology from Singapore's Magnecomp International Ltd for $123 million.

General motors Japan Nikkei 225