The Nikkei share average edged up on Tuesday after revenue at US aluminium giant Alcoa beat expectations, while Olympus jumped 20% on reports it would remain listed, but the benchmark remained stuck below key resistance ahead of events in Europe.
Tokyo Electric Power Co surged more than 24% after a report that its main lenders will begin talks this week to lend an additional 1 trillion yen to the troubled utility.
Market participants said the Nikkei would stay rangebound in thin trade ahead of a Spanish debt auction and a European Central Bank policy meeting on Thursday, and an Italian bond sale on Friday.
German and French leaders warned Greece on Monday that the debt-stricken country would get no more bailout funds until it agrees with creditor banks on a bond swap, reigniting fears of a Greek default and hurting financial stocks in Europe and the United States.
"It's as if the market has a bone stuck in its throat and it's difficult to move in either direction," said Fumiyuki Nakanishi, general manager of investment research at SMBC Friend Securities.
The Nikkei gained 0.4% to 8,422.26, its first rise in three sessions, but remained below its 25-day moving average around 8,500.
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The benchmark has largely kept to a narrow range of 8,350 to 8,500 since mid-December, but market participants said steady performance of bluechips on Tokyo's Core 30 list indicated that the market was unlikely to fall much further.
The broader Topix climbed 0.3% to 731.93.
Alcoa's positive outlook for global aluminium demand helped boost S&P 500 stocks, 0.2%, and MSCI's broadest index of Asia Pacific shares outside Japan climbed 1.7%.
European exposure
But market participants said investors will remain risk averse as they wait for earnings of US financial firms with high exposure to Europe.
"With so much uncertainty from Europe in the short-term, investors are unable to take on risk and there's no-one buying except for short-covering," said Yutaka Miura, senior technical analyst at Mizuho Securities.
Indeed, Europe-sensitive stocks fell broadly on Tuesday, after the euro marked a new 16-month low against the dollar the previous day and stayed near an 11-year low against the yen hit overnight.
Mazda Motor fell 2.2% to 131 yen, Daikin Industries shed 2.2% to 2,005 yen and Konica Minolta Holdings slid 4.2% to 543 yen.
But Olympus Corp jumped 19.9% to 1,263 yen, becoming the third-heaviest traded stock by turnover on the main board, although the Tokyo bourse said no decision has been made on its listing.
The maker of cameras and endoscopes also said on Tuesday it was suing current and former executives over the $1.7 billion accounting scandal engulfing the firm.
"Traders who had oversold after (former CEO Michael) Woodford dropped out of the proxy fight last week are just buying in on reports that the bourse will keep the stock listed," said Masayoshi Okamoto, head of dealing at Jujiya Securities.
Tokyo Electric, the operator of the crippled Fukushima nuclear plant, ended the day up 24.3% at 215 yen and topped the main board as the heaviest traded share by turnover.
The Nikkei newspaper said on Tuesday that the utility's main lenders will decide on conditions to lend additional funds at the government's request.
Trading volume was moderate on Tuesday, with 1.66 billion shares changing hands on the main board, up from 1.54 billion shares on Friday.