Asian stocks recovered from early losses as bargain hunters jumped on oversold shares.

The Nikkei share average rose 2.7% after briefly touching a three-week low, with short-covering on expectations of a Wall Street recovery defying increasingly grim economic news.

Hong Kong share prices ended the morning  4.5%, reversing earlier losses as investors hunted for bargains in financial stocks after four straight days of falls.

"Asian markets are recovering in general despite US stocks. That aids Hong Kong,'' Patrick Yiu of CASH Asset Management said. "Also, there are expectations of more economic stimulus policies from the Chinese government during the weekend.''

In Tokyo, Sumitomo Mitsui Financial and other banks that had been sold off earlier in the week climbed on Friday on apparent bargain-hunting, while many exporters managed to cut their losses after the dollar clawed slightly higher against the yen.

But the mood remained dark after shares in US banking giant Citigroup plunged on fears about its future, taking its total week's losses to nearly half its market value, while uncertainty over a US auto bailout continued to weigh.

Market players said domestic buyers emerged, though whether they were retail investors or pension funds, which were said to have supported the market earlier this week, remained unclear.

"The news out of the United States is very bad and, speaking honestly, the environment now seems completely dark,'' said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"But whether it's bargain hunting or what, there is buying, perhaps on expectations of a technical rebound in New York after such a swift fall.''

Reuters