Tokyo-based traders said Portugal's bond yields rising triggered some consternation in the health of the crisis-hit eurozone, although Greek Prime Minister Lucas Papademos stated that negotiations with Greece's private creditor banks would be concluded "by the end of this week" lifted hopes for Athens's debt restructuring scheme.

Papademos said that while the "time schedule is too tight, he is "totally committed to reaching an agreement".

"The reforms are there, but the measures needed to implement the reforms are still on the table. We expect to reach an agreement on PSI by the end of this week," the Greek prime minister was quoted as saying at a European Union summit Monday, prior to holding talks with senior officials from the European Central Bank and the E.U. on restructuring Greece's debt.

Strategists here said that the latest news from the eurozone helped allay some local investors' fears, although they noted that an end to the crisis in the single currency bloc is still a long way off and difficulties remain over a new debt deal for Greece.

"The fact that Portugal's bond yields rose and reports that Greek talks are facing difficulties is nothing new and it's not a reason to sell. It's all a matter of market sentiment -- investors remain hung-up on Europe, but now is not the time to take a wait- and-see approach," said Yoshihiro Ito, chief strategist at Okasan Online Strategies.

The 225-issue Nikkei Stock Average gained 9.46 points from Monday to close the day at 8,802.51, while the broader Topix index of all First Section issues on the Tokyo Stock Exchange dropped 1. 74 point, or 0.23 percent, to end at 755.27.

Pressured by the U.S. dollar falling to a three-month low versus the yen, exporters took a hit, with Nissan Motor falling 1. 0 percent to 719 yen, while Honda Motor Co., widely exposed to U.S. markets, skidded down 0.6 percent to 2,666 yen.

"The yen continues to strengthen, which is a catalyst for blue- chip shares to get sold," said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co.

Toshiba Corp. retreated 1.8 percent to 323 yen, also pressured by a firm currency and slumping TV sales, while NEC fell 1.3 percent to close the day at 152 yen.

The world's largest camera maker, Canon Inc., fell 145 yen, or 4.2 percent, to 3,290 yen, following the firm announcing its president will resign in March, after profit forecasts came in well below consensus expectations.

Counterpart Fujifilm Holdings Corp., for its part, tumbled 6.9 percent to 1,807 yen, after it slashed its net-income forecast by 48 percent amid rumors of a tie-up with embattled Olympus Corp.. Olympus, however, gained 2.5 percent on the news to close at 1,291 yen.

Chip tester maker Advantest Corp. was among Tuesday's notable gainers, surging 7.1 percent to 875 yen, following the company's stock rating being lifted to "neutral" from "underperform" by Daiwa Securities Capital Markets Co.

Trading volume on Tuesday rose to 2.06 billion shares on the Tokyo Exchange's First Section, up from Monday's volume of 1.64 billion shares, with advancing issues edging declining ones by 777 to 732.