HONG KONG - Asian markets mostly fell Monday after US lawmakers failed to prevent the imposition of US$85 billion (S$105 billion) in spending cuts that kicked in at the end of last week.
Chinese shares suffered the biggest sell-off with property developers hit by measures to cool the housing market, but Tokyo enjoyed modest gains as the man tapped to become Japan's top central banker vowed to tackle deflation.
Shanghai lost 3.65 per cent, or 86.10 points, to end at 2,273.40, Sydney slipped 1.49 per cent, or 75.6 points, to 5,010.5, and Seoul was off 0.66 per cent, or 13.34 points, at 2,013.15. Hong Kong lost 1.63 per cent in the afternoon.
Tokyo put on 0.40 per cent, or 45.91 points, to close at 11,652.29.
US politicians traded barbs over the weekend after the "sequester" of deep federal spending cuts that kicked in on Friday, with most economists warning it will lead to rising unemployment and dent economic growth.
The White House said Sunday that as voters start to feel the pain, Republicans will pivot and seek compromise.
But the Republicans did not sound like they were in any mood to budge, with the party's Senate leader Mitch McConnell saying the American people understood it was time for belt-tightening.
There had been hope that Democrats and Republicans would be able to reach a compromise to cut the budget that would not be as painful, but last-minute talks failed Thursday.
However, despite the lack of movement in Washington, investors are confident a deal will eventually be made. Wall Street got a boost after fresh data that showed consumer spending rose in January at double the rate of December, despite lower personal income.
There was further cheer from a report that showed US manufacturing activity hit the highest level since mid-2011.
The Dow jumped 0.25 per cent to within sight of its all-time high seen in October 2007, before the onset of the global financial crisis.
The broad-based S&P 500 was up 0.23 per cent and the Nasdaq gained 0.30 per cent.
On currency markets the dollar, which enjoyed a strong rally in New York, eased slightly to 93.45 yen (S$1.23) in Tokyo against 93.59 yen late Friday despite a pledge from Haruhiko Kuroda, the government's nominee to lead the Bank of Japan, to do "everything possible" to conquer deflation.