HONG KONG - Asian shares rose Friday on hopes of a last-minute deal to avert the US fiscal cliff, despite warnings from a leading Democrat that an agreement is unlikely just days before a year-end deadline.
Expectations for more aggressive monetary easing by the Bank of Japan continued to weigh on the yen, which was sitting at more than two-year lows against the dollar.
In its last trading day of the year Tokyo's Nikkei climbed 0.70 per cent to highs not seen since before last year's March 11 quake-tsunami disaster. The index ended 72.20 points up at 10,395.18. It rose 22.9 per cent for the year.
Sydney gained 0.50 per cent, or 23.3 points, to close at 4,671.3 and Seoul closed up 0.49 per cent, or 9.70 points, to 1,997.05.
Hong Kong added 0.21 per cent, or 46.81 points, to end at 22,666.59, while Shanghai put on 1.24 per cent, or 27.35 points, to 2,233.25.
US politicians have until Tuesday to come up with a deficit-cutting budget that is less painful than the steep tax hikes and swingeing spending cuts that most economists say will tip the country into recession.
With time counting down Republicans and Democrats are blaming each other for the lack of progress on a deal, with Senate Majority Leader Harry Reid saying: "I have to be very honest, I don't know time-wise how it can happen now."
President Barack Obama cut short his Christmas holiday to Hawaii to host top congressional leaders on Friday in a last-ditch bid to find an agreement. Dealers seemed to take heart from reports that the House of Representatives would reconvene on Sunday, raising hopes of an 11th-hour compromise.
However, SMBC Nikko Securities general manager of equities Hiroichi Nishi told Dow Jones Newswires: "The market has factored in the possibility that talks will spill over to 2013.
"It remains a focus of attention, but sooner or later it's going to be solved."
On Wall Street the Dow fell 0.14 per cent, the S&P 500 slipped 0.12 per cent and the Nasdaq shed 0.14 per cent.
Despite the uncertainty in Washington the dollar climbed against the yen, buying 86.40 yen in early Asian trade, up from 86.09 yen in New York late Thursday, hovering around its highest level since August 2010.
The euro was at 114.39 yen and $1.3248, against 113.97 yen and $1.3235.
Investors have been selling the yen on expectations Japan's new Prime Minister Shinzo Abe will carry out his promises of more aggressive monetary easing and big government spending to lift inflation and kickstart the economy.
There was little movement on news that factory output for November was down a bigger than forecast 1.7 per cent month on month and a warning from the economy ministry that "industrial production is on a downward trend".
Oil prices rose, with New York's main contract, light sweet crude for delivery in February adding 39 cents to $91.26 a barrel and Brent North Sea crude for February gaining 41 cents to $111.21 in the afternoon.
Gold was at $1,658.90 at 1035 GMT compared with $1,655.26 late Thursday.
In other markets:
Taipei rose 51.09 points, or 0.67 per cent, to 7,699.50.
TSMC was 1.46 per cent higher at Tw$97.0 while Hon Hai Precision edged down 0.11 per cent to Tw$88.9.
Manila added 0.31 per cent, or 17.84 points, to close at 5,812.73.
BDO Unibank gained 0.07 per cent to 72.80 pesos while SM Investments rose 0.22 per cent to 882 pesos.
Wellington ended 0.38 per cent, or 15.46 points, higher at 4,080.90.
Bangkok fell 0.38 per cent or 5.26 points to 1,391.93.
Siam Cement dropped 2.22 per cent to 440.00 baht, while telecoms company Advanced Info Service lost 1.42 per cent to 209.00 baht.
Jakarta ended up 34.83 points, or 0.81 per cent, at 4,316.68.
Astra Agro Lestari rose 3.14 per cent to 19,700 rupiah, Telekomunikasi Indonesia gained 1.12 per cent to 9,050 rupiah, while Indocement Tunggal Prakarsa lost 0.88 per cent to 22,450 rupiah.
Singapore closed up 0.25 per cent, or 7.87 points to 3,191.80.
Jardine Cycle & Carriage gained 0.50 per cent to S$48.29, while United Overseas Bank shed 0.30 per cent to S$19.82.
Kuala Lumpur gained 7.17 points, or 0.43 per cent, for a record closing high of 1,681.33.
Bumi Armada rose 2.6 per cent to 3.90 ringgit while Sime Darby ended up 1.1 per cent at 9.49. IHH Healthcare lost 0.9 per cent to close at 3.38 ringgit.
Mumbai rose 0.63 per cent or 121.04 points at 19,444.84 points.
Suzlon jumped 7.52 per cent to 19.3 rupees, Reliance Industries rose 2.73 per cent to 840.35 rupees and state-run oil explorer ONGC rose 2.49 per cent to 265.85.