But the benchmark's 25-day moving average held, with market players saying bids from hedge funds and foreign pension funds were detected at 8,500, just below the average. Friday's historic agreement in Brussels between 26 European Union leaders to draft a new treaty for deeper integration in the euro zone only gave a brief fillip to markets and few players expect Tokyo equities to gain much in the coming days. Key events this week include a Federal Reserve meeting on Tuesday, at which is expected to hold off on policy changes and the Bank of Japan's "tankan" survey of business sentiment on Thursday. "The Federal Reserve is unlikely to say anything that the market hasn't already priced in, and we know the Bank of Japan's tankan is likely to be negative, so the Nikkei can't really climb higher especially with downgrades looming," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities. Moody's Investors Service intends to review EU sovereign ratings in the first quarter of 2012, saying last week's summit offered "few new measures". Fitch Ratings said the summit's failure to provide a "comprehensive" solution would increase short-term pressure on euro zone sovereign ratings. The Nikkei fell 1.2 percent to 8,552.81, still above its 25-day average near 8,508, after failing to top its 75-day moving average on Monday. The broader Topix index lost 0.8 percent to 740.71. "The euro zone debt crisis will not be solved so easily. In short, there's no reason to buy stocks, except perhaps for the fact that Japanese shares are relatively cheap," said Hiroaki Kuramochi, general manager of equity sales at Mita Securities. In a possible sign of rising expectations that trade will stay range-bound until the year-end holiday period, implied volatilities on the Nikkei dropped, with one-month volatility on put options falling this week to its lowest level since early August. CUSHIONING THE BLOW While concerns about Europe keep many players on edge, a string of fairly upbeat US data in recent months has raised hopes that solid US growth could cushion the blow from a likely recession in Europe next year. "If it looks like the BRICS (Brazil, Russia, India, China and South Africa) could lead the world economy and if demand conditions in the US are stable, markets could withstand a downgrade in Europe for instance," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management. Investors also expect signs of slowing growth in China to push Beijing towards a more explicit pro-growth policy stance. Among decliners, Japan's automaker subindex fell 1.5 percent, with Honda Motor Co leading losses, dropping 2.9 percent to 2,384 yen. Market players said investors were growing concerned about the impact on Honda from the Thai floods after Toyota Motor Corp recently halved its annual profit outlook. Honda, Japan's third-largest car maker, has been hit the hardest by the disaster and has said it was aiming to give a full-year forecast with its third-quarter results, usually released in late January. Scandal-hit Olympus Corp gained 5.4 percent to 1,370 yen, continuing to trade near a six-week high after media reported that auditors are set to approve with qualification financial statements for the past five years, bolstering chances of the company remaining listed. The company is preparing to report revised earnings on Wednesday, seeking to avoid delisting by the Tokyo bourse. Trading volume remained thin, with 1.65 billion shares changing hands on the main board, up from 1.51 billion shares on Monday, and a 3 percent increase from the 20-day average volume. Declining shares outpaced advancing issues 912 to 588.