TOKYO -- After pumping into higher territory, Japanese shares lost momentum and closed lower as local brokerage dealers squared off positions ahead of the weekend and Monday's market holiday in the U.S.

The key

Nikkei 225

index shed 121.48 to close at 16,739.78, while the

Topix

index, which includes all shares listed on the

Tokyo Stock Exchange's

first section, lost 3.96 to finish at 1507.48. The

Jasdaq

small-cap index rose 0.23 to end at 83.31, while the Nikkei

over-the-counter index

gained 1.64 to close at 1734.79.

The day got off to a good start with retail buying in large electronic shares such as

Sony

(SNE) - Get Report

, up 90 to 11,990 ($112.52),

Fujitsu

, up 90, or 2.9%, to 3180, and

Furukawa Electric

, up 4, or 1.6%, to 251.

But traders had the weekend on their minds, which led to some lethargic trading. In addition, more investors started to unwind cross-shareholdings ahead of the fiscal first half ending in September.

NTT DoCoMo

fell 20,000, to 2.8 million, while

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Seven-Eleven Japan

lost 520, or 7.6%, to 6330. Nikkei 225 futures also came under pressure as foreign futures traders started to adjust positions ahead of the settlement of August Nikkei 225 futures and options contracts next week, players added.

In other news,

Matsushita Communication Industrial

, one of the world's largest mobile-phone manufacturers, lost 350, or 2.4%, to 14,400, after the firm cut estimates on worldwide sales by 7.5% to around 370 million handsets The firm cited weak sales in Europe as the main cause for the cut.

Nippon Telegraph & Telephone

(NTT)

gained 30,000, or 2.4%, to 1.3 million after the firm announced it was slashing its long-distance phone charges. Investors seemed to concentrate on the fact that the telco monopoly was finally embracing competition, not lower profits due to the rate cut.

With most Japanese interbank dealers covering their short positions on the euro, the dollar eased slightly against the yen to fetch 106.56 recently.

Hong Kong's

Hang Seng

index rallied, up 236.10, or 1.38%, to close at 17,333.61, after U.S. factory orders dropped, easing concerns about a future interest rate hike stateside and at home. Bank and property shares took over much of the action, with

HSBC

(HBC)

rising HK$1.50, or 1.4%, to 112.50 ($14.42), while

Sun Hung Kai Properties

gained 3.00, or 4.0%, to 77.25.

Taiwan's

TWSE

index dropped 196.92, or 2.6%, finishing the day at 7420.06 after investors worried over the government's current campaign to combat financial corruption. Comments from the island's premier Tang Fei didn't help; he asked investors to endure short-term pain as the government tackles financial fraud.

Elsewhere in Asia, Korea's

Kospi

index climbed 3.57 to a close of 692.19.