Asian stocks snapped a four-day winning streak on Wednesday and safe assets like gold consolidated chunky overnight gains after President Barack Obama clinched the backing of two key figures in Congress in his drive for limited U.S. strikes on Syria.
The U.S. dollar stood tall even as risk appetite ebbed, on course for its best five day performance in two months against a basket of currencies as a stronger-than-expected slate of U.S. data emboldened greenback bulls.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 percent after four days of gains. Philippines and Indonesia's stocks led declines in the region.
"There are still uncertainties stirred by the Fed's possible trimming of its stimulus programme later this month and U.S.-led military action against Syria," said Shinyoung Securities analyst Lee Kyung-soo. "It's hard to rally against such uncertainties."
Risk appetite was noticeably on the back foot after key congressional leaders John Boehner and Eric Cantor both pledged their support for military action to punish President Bashar al-Assad for his suspected use of chemical weapons against civilians.
Their stance suggested that the vote could pass in Congress when lawmakers return to Washington on September 9, CitiFX wrote in a client note.
The increased sense of urgency pushed down benchmark ten-year U.S. treasury yields to 2.86 percent from overnight highs.
The U.S. bond moves came despite a U.S. manufacturing index surprising forecasts on the upside and set the tone for Friday's non-farm payrolls which could bolster expectations the Federal Reserve will begin to scale back its massive bond-buying programme as early as this month.
Still, ten year U.S. yields are eight basis points above Friday's close and nearly 90 basis points higher since Fed Chairman Ben Bernanke's remarks in June that the central bank might scale back its monthly bond purchases.
Rising U.S. yields have hit demand for emerging market assets such as high-yielding currencies in Asia and sent debt yields there spiralling higher as global investors dumped these assets.
A JP Morgan index of emerging market debt in Asia hit 4 percent for the first time since November 2009, according to Thomson Reuters Datastream.
The brunt of the selloff has been felt by emerging market countries in Asia such as India and Indonesia which have been singled out by investors for punishment due to their reliance on capital inflows to paper over widening deficits.
In stark contrast to these two beleaguered economies, the Korean won punched above a 200-day moving average, a key