TOKYO -- Most Asian markets cooled off Wednesday as anxiety over a U.S. credit tightening mounted and as investors started to have second thoughts about the effect of the America Online (AOL) and Time Warner (TWX) merger.

The benchmark

Nikkei 225

index dropped 173.50 to 18,677.42, while the

Topix

index, consisting of shares listed on the

Tokyo Stock Exchange's

first section, slipped 21.90, or 1.3%, to 1656.92. The

Jasdaq

small-cap index inched 0.15 higher to 96.44, while the

Nikkei

over-the-counter shares slipped 8.07 to 2243.89.

Tech and telecom shares were beaten down, with

Fujitsu

, down 210, or 4.9%, to 4090 and

KDD

600, or 4.4% lower, to 13,200.

Sony

(SNE) - Get Report

didn't fare any better, dropping 300, or 1.2%, to 25,400, while

NEC

(NIPNY)

closed down 95 points, or 4%, to 2310.

Although retail investors closely emulated overnight U.S. market movements, domestic mutual funds and foreign investors seemed to go in the opposite direction, picking up many of the tech shares and other blue-chips as prices got cheaper, traders said.

"It's getting very hard for an individual to get in on the action with tech shares, especially when the TSE halts trading on shares like Sony and Fujitsu every time orders aren't balanced. I'm beginning to think Sony is a U.S. stock, not Japanese," grumbled one player from a Japanese trading house.

The TSE halts trading of shares that hike or drop by 2,000 points until bids and offers roughly balance out. If offers outnumber bids, or vice versa, the exchange doles out an even amount of shares at the end of the session to securities firms so they can finish carrying out orders for their clients.

"I'm going to have to consider trading Sony ADRs if I ever want them in my portfolio," the trader added.

Bank shares were also weak, including the

Bank of Tokyo-Mitsubishi

(MBK)

, down 28, or 2%, to 1396, while

Daiwa Bank

slipped 6, or 2%, to 300. Bank shares have fallen more than 30% since they peaked in mid-October, underperforming the Nikkei 225 index by 34%, according to

Lehman Brothers

.

Lehman urged clients to jump back in on bank stocks. The firm upgraded

Sakura Bank

(SAKUY)

,

Dai-Ichi Kangyo Bank

,

Fuji Bank

(FUJPY)

and

Tokai Bank

(TOKBY)

to buy from neutral and maintained its buy rating for the Bank of Tokyo-Mitsubishi.

Amid the selling were two bright spots,

Yahoo! Japan

and

Softbank

. A better-than-expected fourth-quarter pro forma earnings

report from

Yahoo!

(YHOO)

in the U.S. helped shares climb 2.1 million, or by 2.2%, to 9.14 million. Just as in the U.S., traders said they expected Yahoo! Japan to top previous earnings and monthly traffic numbers but that wasn't all the market talked about.

Traders were in a tizzy when they heard

Goldman Sachs

had more than doubled its 12-month target price on Yahoo! Japan's parent Softbank to 184,000. Goldman analyst Hiroshi Yamashina said shares in the Internet giant failed to factor in the value of unlisted companies Softbank currently owns.

"Softbank invests in U.S. Internet companies with the aim of using the returns and the expertise it acquires to develop business in Japan and Europe," Yamashina said in a report. He also said the firm's e-business experience and business model of acquiring a stake in almost every major player in the Internet sector justifies a share price premium of 100%.

Softbank closed up 5000, or 6.1%, to 86,000.

The dollar hovered around 106.00 yen today, pulled back and forth between Japanese exporters selling the dollar as it hiked above 106.00 yen, while U.S. hedge funds and Japanese pension and mutual funds were picking up the greenback at around 105.80 yen.

Hong Kong's

Hang Seng

slipped 147.90 to 15,714.20 as investors actively hedged against higher bond yields at home and around the globe.

HSBC Holdings

(HBC)

fell 1.750, or 1.8%, to 96.250.

Media shares, on the back of the America Online-Time Warner merger, helped

Paramount Publishing

close up 0.130, or 7.8%, to 1.790.

Cable & Wireless HKT

, Hong Kong's only broadband Internet service provider, also closed 0.800, or 4.2%, higher to 19.950 as investors thought the firm would be a good contender for a merger. There were also vague rumors about a C&W share swap with an unnamed U.S. firm but the talk remains unconfirmed.

Singapore's

Straits Times

index finished up 17.86 to 2427.56, largely boosted by buying in

TeleData

, up 0.110, or 15.4%, to 0.825.

Korea's Kospi

index closed down 26.32, or 2.7%, to 955.01, while Taiwan's

TWSE

index finished up 217.62, or 2.4%, to 9144.65.