Japan's Nikkei average is expected to slip on Monday and test the July low

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of 9,050, but exporters such as Canon Inc are seen rising as short-covering emerges after the yen retreated from a 14-year high on the dollar.

Wall Street fell on Friday but signals were mixed on how long the flight to less risky assets might last, with U.S. shares easing back up off their lows by the end of a truncated trading day as some market players said worries about Dubai debt default had coincided with the desire of investors to take profits as the year-end approaches. "Japanese stocks have been sharply oversold, and even though U.S. shares fell Nikkei futures in Chicago gained, meaning there's a chance of short-covering," said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities.

"Whether the market breaks the July low depends on whether the yen starts gaining on the dollar again." Should the benchmark Nikkei fall below 9,050, it will touch its lowest point since mid-May. The dollar edged up slightly against the yen at 86.60 after falling below 85 yen last week.

But Nishi said investors will also be waiting to see what, if any, response Japan's government takes to the recent market volatility. Prime Minister Yukio Hatoyama and Bank of Japan Governor Masaaki Shirakawa will meet this week, two sources with direct knowledge of the matter said on Saturday, as a surging yen adds to debate over central bank policy.

Financial markets around the world shuddered last week after Dubai said it would ask creditors of state-owned Dubai World and Nakheel, the builder of its palm-shaped islands, for a standstill agreement as a first step toward restructuring billions of dollars of debt.. On Friday, the Dow Jones industrial average fell 1.5 percent. The S&P 500 lost 1.7 percent, as did the Nasdaq.

The benchmark Nikkei is likely to move between 9,000 and 9,300, market players said, after closing at 9,081.52 on Friday. Industrial output data due out just before the open could provide some direction. In a sign the market may open positive, Nikkei futures traded in Chicago closed at 9,220, up 1.7 percent from the Osaka close.