The Nikkei Stock Average of 225 issues closed at 13,516.07 points on the Tokyo Stock Exchange on Wednesday, down 304.61 points, or 2.20% from Tuesday.

Continuing concerns over the impact of government measures to pull Japan out of recession dragged the index lower for the third consecutive day.

"There are no new incentives to make investors buy as the market has factored in measures to stabilise the financial system and the short covering of bank shares has been completed," said Masatoshi Sato, manager of investor information group at Kankaku Securities.

The market rose in early trading after Prime Minister Keizo Obuchi instructed his Cabinet to compile a package of economic stimulus measures by November 16.

The new spending package, expected to total at least 10 trillion yen ($84bn), will likely form the core of another supplementary budget.

But the gain proved short-lived amid uncertainty about details of the plan and concern it will tilt heavily toward public works spending instead of tax cuts.

"We want to see more specifics," said Futoshi Yoshimura, joint head of dealing at Schroder Securities Japan Ltd.'s equity trading department.

Meanwhile, the dollar rose moderately against the yen as expectations that the dollar will continue to strengthen against other major currencies offset bouts of profit-taking.