Tokyo stocks edged lower Monday, reversing early gains driven by surges in US and European markets after a key EU summit delivered surprise measures to fight the eurozone debt crisis.
The benchmark Nikkei 225 index at the Tokyo Stock Exchange was down 0.04 percent, or 3.30 points, to 9,003.48, while the broader Topix index of all first-section shares fell 0.10 percent, or 0.74 points, to 769.34.
Just before the opening bell, a quarterly Bank of Japan survey showed sentiment among major Japanese manufacturers had improved in the quarter ended June, offering some positive news for the world's third-largest economy.
But late profit-taking sent the index into negative territory, dealers said.
The Nikkei's early gain came after the Dow Jones Industrial Average closed up 2.20 percent at 12,880.09 on Friday.
European leaders have agreed to use emergency funds to support ailing banks directly and to ease pressure on their countries' public debt burdens, with plans to inject 120 billion euros ($150 billion) worth of stimulus into the continent's economy.
However, the Bank of Japan survey showed that business sentiment remained weak, albeit improved from the previous quarter, while questions remained about details and implementation of the EU deal.
"Against this backdrop, investors are more willing to buy on pullbacks than to chase the market higher," said Mattia Ciancaleoni, director of equity sales at Citigroup.
Political uncertainty in Japan also weighed after about 50 lawmakers submitted their resignations to the ruling party along with one-time leader Ichiro Ozawa over the government's efforts to raise sales tax.
Pressure on Prime Minister Yoshihiko Noda's government has been stoked by a wave of anti-nuclear sentiment accompanying the restart of an atomic reactor, with tens of thousands of people protesting outside his residence on Friday.
A stronger yen also helped push down major exporters' shares, with Toyota Motor 0.47 percent lower at 3,175 yen and industrial robot maker Fanuc off 0.84 percent at 12,840 yen.
Consumer electronics giant TDK rose 1.56 percent at 3,250 yen on bargain-hunting after nearly two weeks of declines, while trading house Mitsui gained 0.59 percent to 1,181 yen.
On currency markets, the dollar was quoted at 79.55 yen, softening from 79.83 yen in New York late Friday.
The euro eased to $1.2624 and 100.52 yen from $1.2654 and 101.02 yen.
-- Dow Jones Newswires contributed to this story --