Asian stocks mostly fell on Thursday as investors reacted to the prospect of drawn-out negotiations over the looming U.S. fiscal cliff by shedding riskier assets, but Japanese equities bucked the trend as a sharp slide in the yen lifted exporters' shares.
The retreat from risk also weighed on commodities, with the exception of oil, which jumped in the previous session due to rising tensions in the Middle East after Israel launched an offensive against Palestinian militants in Gaza.
Of course we did just see a sharp sell-off on Wall Street as we approach that fiscal cliff, said Stan Shamu, market analyst at IG Markets in Melbourne. It just seems that there's not much confidence out there.
MSCI's broadest index of Asia Pacific shares outside Japan fell 0.9 percent, with shares in South Korea , Australia and Hong Kong all losing 1 percent or more.
But Tokyo's Nikkei rose 0.9 percent as the boost given to exporters such as Toyota Motor Corp, Honda Motor Co and Canon Inc. by a slide in the yen the previous day outweighed global concerns.
Shares in Playstation maker Sony Corp tumbled however, losing 10.7 percent after the company said it would raise $1.9 billion through a sale of convertible bonds. U.S. stocks fell more than 1 percent on Wednesday after President Barack Obama reiterated his call for the wealthy to pay higher taxes, setting the stage for a tough budget battle with Congressional Republicans.
Investors fear that the package of tax increases and spending cuts mandated to come into force next year if a deal is not agreed - the so-called fiscal cliff - will pitch the world's biggest economy back into recession, dealing a fresh blow to the fragile global economy.
ELECTION CALL WEAKENS YEN
Currency markets were little changed, with the euro flat around $1.2733, having halted a five-day slide that had taken the single currency to its lowest in more than two months, and the yen steady at 80.185 to the dollar.
The yen had fallen the most against the dollar in two months on Wednesday after Japanese Prime Minister Yoshihiko Noda indicated he would call a snap election next month.
Japan's main opposition Liberal Democratic Party, which favours further monetary policy easing by the central bank, leads in opinion polls and the prospect of an early election is regarded as negative for the yen.
Everyone is expecting Shinzo Abe from