TOKYO (AFP) - Tokyo shares closed 0.89 per cent higher on Friday in a rollercoaster session that came a day after the Nikkei 225 index suffered its worst one-day drop since Japan's March 2011 quake-tsunami disaster.

The benchmark Nikkei, which on Thursday plunged 7.3 per cent, finished 0.89 percent, or 128.47 points, higher at 14,612.45, while the broader Topix index of all first-section shares rose 0.48 per cent, or 5.74 points, to 1,194.08.

The headline index swung wildly in heavy trading as it surged at the open only to drop more than three per cent in the afternoon before ending the day back in positive territory.

Mr Toshikazu Horiuchi, a broker with IwaiCosmo Securities, said "extremely nervous" trading saw investors locking in profits with others searching out bargains after Thursday's precipitous plunge.

"Players rushed to profit-taking after a moderate gain in the morning because they wanted to lock in their gains ahead of the weekend," Mr Horiuchi said.

Big trades by hedge funds also helped account for the volatility, dealers said, a day after panicky investors dumped their shares, sending the Nikkei tumbling on weak Chinese data after months of sharp climbs.

Earlier Friday, Mr Kenji Shiomura, strategist at Daiwa Securities, described Thursday's eye-watering drop as a temporary correction to the recent fast-paced advances with investors taking a cue from weak Chinese data and other negative news.

"There has not been any grave event that could change corporate earnings outlooks and what happened yesterday should be a correction to the recent excessive rises," he said.

"Looking ahead, the market will likely be on an uptrend on expectations of a recovery in company earnings."

Japan Inc. wrapped its latest corporate earnings season on a high note, with a weaker yen helping inflate earnings at some of the nation's top exporters as it makes them more competitive overseas and increases the value of their repatriated foreign income.

The Nikkei has gained nearly 60 per cent over the past six months under the pro-spending, pro-growth policies led by Prime Minister Shinzo Abe, who took office in December after landslide elections.

Aggressive monetary easing by the Bank of Japan has helped push down the yen, which in turn tends to lift shares of Japanese firms.

Despite the upbeat sentiment among some analysts, others warned that Tokyo's meteoric rise may stall with a correction overdue.

The "slump is not necessarily the end of the bull market in Japanese equities, but the next few months will be much harder going," London-based Capital Economics said in a note.

"We continue to expect the Nikkei to fall further, probably below 13,000, before the end of 2013."

In New York, the Dow Jones Industrial Average slipped 0.08 per cent to 15,294.50 Thursday, little affected by a sharp sell-off in Asian and European markets led by the plunge in Tokyo, as Wall Street got a boost from better-than-expected US housing and jobless data.

In currency markets, the dollar was trading at 101.65 yen in Friday afternoon trade, weakening from 101.82 yen in New York late Thursday.

The euro fetched $1.2934 and 131.47 yen against US$1.2935 and 131.72 yen in US trade.