Stocks in Tokyo hit a 25-year low on Tuesday and most major indexes in Asia were down, caught in the downdraft of risk aversion sparked by renewed concern over the global financial sector.

Japan's broad Topix index hit a 25-year intraday low, while the Nikkei share average slipped to a four-month trough and was hovering just above a 26-year low hit last October.

However, there were signs that some investors were picking up bargains and shaving their safe-haven positions. The MSCI index of Asia-Pacific stocks outside Japan swung from a three-month low to show a small gain on the day and the dollar index backed off a three-year high reached in early dealings.

Financial markets have been shaken this week by concerns that global financial-sector woes are deepening. U.S. insurer American International Group (AIG) posted a record quarterly loss on Monday, and HSBC announced Britain's largest-ever rights issuet bolster its balance sheet.

That rattled Wall Street on Monday, where the the Dow Jones industrial average closed at a 12-year low and had earlier sent the FTSEurofirst 300 index of leading European shares down to end a whisker away from a lifetime low.

"U.S. stocks aren't going to stop falling without some kind of message from the government, along with some kind of fresh policy package, whether stimulus or financial," said Noritsugu Hirakawa, a strategist at Okasan Securities.

Japan's Nikkei fell as far as 7,088.47, its lowest level since hitting a 26-year low of 6,994.90 in October. The Topix fell as low as 714.96.

Still, Japanese shares trimmed their losses, which dealers attributed to investors buying stocks on price dips.

The MSCI Asia index of shares outside Japan hit a three-month low of 202.69, but later turned positive for a gain on the day of 0.9 percent.

While stock indexes in Singapore, Jakarta and the Philippines showed marginal gains, most other indexes were down, including Hong Kong, Sydney, Taiwan, Seoul and Bombay.

The Australian dollar jumped after Australia's central bank held its policy interest rate steady at 3.25 percent, surprising some in the market who had thought the latest turbulence in global markets would prompt another easing.

The decision boosted the Australian dollar, which was up 1.7 percent on the day.

DOLLAR INDEX RISES

However, there were also signs that investors were trimming safe-haven positions after a run up in the value of these assets.

The dollar index, which measures its value against a basket of six currencies, climbed to 89.026 in early Asian trading on Tuesday, its highest level since April 2006.

After trimming gains it was down 0.4 percent on the day at 88.607.

The index has climbed 9.5 percent this year as the U.S. S&P 500 stock index has fallen 19 percent, reflecting rising risk aversion.

Reflecting similar concerns, the Chicago Board of Options Exchange Volatility Index, known as Wall Street's fear gauge, spiked 13.6 percent on Monday.

Investors also trimmed positions in U.S. debt, another safe-haven asset. Benchmark U.S. 10-year Treasuries fell 17/32 in price to yield 2.927 percent, after they had rallied on Monday.

Oil held steady above $40 a barrel after tumbling 10 percent on Monday on concerns that a deepening global downturn would cut further into fuel consumption.

Gold was also holding steady at just below $930 an ounce.