Japan's Nikkei share average slipped to a fresh two-month low on Friday, with Softbank Corp tumbling 17% after the wireless service provider said it was in talks to invest in US firm Sprint Nextel.
But index losses were capped by gains in exporters as news of the potential deal, which could range up to more than 2 trillion yen, helped weaken the yen.
The benchmark Nikkei eased 0.2% to 8,534.12, losing ground for a fifth straight session, and was down 3.7% for the week, its biggest weekly fall since May and a fourth straight week of losses.
Trade was active, with Fast Retailing, another benchmark heavyweight, sinking 10% after its disappointing results late on Thursday.
The benchmark Nikkei has fallen 8.1% since hitting a four-month high on September 19, on concerns that this quarterly earnings season will be weak due to sluggish global growth. The index is still up 0.9% this year.
Softbank is looking at a controlling stake in Sprint worth more than 1 trillion yen, sources said, and the talks have spurred speculation that the Japanese firm could also make a run at other companies via Sprint, potentially costing 2 trillion yen.
Softbank's stock slid to a more than four-month low and suffered its biggest ever one-day%age drop, w iping n early $7 billion o f f its market capitalisation, a s investors raises concerns that the deal would be too costly and have no synergy with its Japanese business.
"The strong yen is probably one of the reasons for Softbank to acquire overseas assets but I don't think this deal will be good for Softbank," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.
"For Sprint, this seems a must-do deal while it's not for Softbank."
The stock was the most-traded on the main board by turnover. Softbank's rival, KDDI Corp advanced 1.2% and was the fourth-most traded stock.
The news of a potentially huge deal helped soften the yen to 78.41 against the dollar, down from Thursday's high of 77.94.
That lifted exporters, which have been battered recently by concerns over their earnings.
"In some sense, (Softbank Chairman Masayoshi Son) has actually weakened the yen. The market's gone up, his stock's gone down," a sales trader at a foreign bank said.
"It's a huge deal. Often when the market turns, it often comes from big M&A."
Toyota Motor Corp, Canon Inc and TDK Corp were up between 1.1 and 2.4%.
The broader Topix advanced 0.6% to 718.32, with 1.73 billion shares changing hands, up from Thursday's 1.72 billion and last week's average of 1.45 billion.
Fast Retailing, the operator of the casual clothing chain Uniqlo, was the second-most traded issue after its full-year operating profit came in below market expectations, while investors were also disappointed with its earnings guidance for this business year.
