HONG KONG - Asian markets slipped on Tuesday following losses on Wall Street, as attention turns to a brewing budget row in Washington that threatens to shut down parts of the US economy.
The euro - which enjoyed a boost from Chancellor Angela Merkel's weekend election win in Germany - also retreated after the head of the European Central Bank (ECB) aired concerns about interest rates.
Tokyo edged down 9.81 points to 14,732.61 on its first day of trading after a long weekend, with a slightly stronger yen weighing on exporters. Sydney eased 0.35 per cent, or 18.3 points, to 5,234.2 and Seoul lost 0.11 per cent, or 2.31 points, to close at 2,007.10.
Shanghai slipped 0.61 per cent, or 13.51 points, to 2,207.53 while Hong Kong was down 0.82 per cent, or 192.50 points, at 23,179.04.
Shares were also suffering from profit-taking after Thursday's rallies that were fuelled by the US Federal Reserve's surprise decision to keep its stimulus programme unchanged for now.
With the fiscal year ending on September 30, US lawmakers are unable to reach a compromise on the budget. President Barack Obama is refusing to agree to Republican demands that would see huge cuts to his landmark healthcare law.
Should they fail to find a compromise several government agencies will close on October 1, putting hundreds of thousands of non-essential staff on unpaid leave.
Obama is also facing another battle to raise the country's debt ceiling as the government is expected to run out of cash in the middle of next month, meaning it could default on its repayment obligations.
A similar standoff in 2011 sent global markets slumping and led to the historic downgrade of the US sovereign debt rating.
White House senior advisor Dan Pfeiffer accused Republicans of caring "more about scoring political points on Obamacare than keeping the government open and our economy moving forward".
On Wall Street Monday the Dow fell 0.32 per cent and the S&P 500 lost 0.47 per cent. The Nasdaq shed 0.25 per cent despite a surge in Apple shares after the computer giant said it sold nine million new iPhones over the three-day launch weekend.
'Draghi fears hit euro'
In forex trade the dollar was changing hands at 99.09 yen, up from 98.83 yen in New York but well off levels above 99 yen in Asia Monday.
The greenback saw selling on Monday after Federal Reserve officials reinforced the message that it needed to see more concrete improvement in the economy before cutting back its $85-billion-a-month stimulus scheme.
The euro bought $1.3494, hardly changed from $1.3493 in New York and much lower than the $1.3529 seen in Asian trade on Monday.
Investors moved out of the European unit after ECB boss Mario Draghi aired concerns about rates in short-term money markets, indicating there was less money in the banking system to allow lenders to lend.
He said that with financial markets now stabilised, European banks had started repaying loans the ECB gave them in 2011 and 2013 to get through a credit crunch. However, paying that money back has tightened conditions in the money markets again.
Draghi said the ECB was ready to use "any instrument including another LTRO (a slip long-term refinancing operation) if needed" to prevent further tightening.
Asian-based companies linked to Apple bucked the regional downtrend after the US firm said it had sold a "record-breaking" nine million iPhones at their launch weekend just passed.
In Tokyo supplier Murata Manufacturing Co. rose 1.5 per cent, while LG Display added 1.9 per cent in Seoul, and assembler Hon Hai Precision Industry was up 0.9 per cent in Taipei.
On oil markets New York's main contract, West Texas Intermediate for delivery in November, was down 27 cents at $103.32 in afternoon trade. Brent North Sea crude for November eased 26 cents to $107.90.
WTI dipped $1.16 in New York Monday, while Brent fell $1.06 in London trade.
Gold cost $1,315.50 at 1045 GMT compared with $1,321.80 on Monday.
In other markets:
Taipei ended flat, edging up 6.29 points to 8,299.12.
Taiwan Semiconductor Manufacturing Co fell 0.47 per cent to Tw$105.5.
Wellington rose 0.20 per cent, or 9.21 points, to 4,710.59.
Outdoor clothing retailer Kathmandu surged 11.6 per cent after posting a strong full-year profit, while Fletcher Building added 2.0 per cent to NZ$9.70.
But Telecom slipped 0.88 per cent to NZ$2.26.
Manila eased 0.26 per cent, or 16.56 points, to 6,461.38.
Alliance Global shed 1.14 per cent to 25.95 pesos, Philippine Long Distance Telephone fell 0.60 per cent to 2,996 pesos and Universal Robina lost 3.03 per cent to 128 pesos.
Bangkok fell 1.32 per cent, or 18.91 points, to close at 1,417.77.
Coal producer Banpu added 1.03 per cent to 293.00 baht, while Bangkok Bank lost 1.46 per cent to 203.00 baht.
Jakarta closed down 2.25 per cent, or 102.44 points, at 4,460.41.
Asia Pacific Fibers dropped 1.06 per cent to 93 rupiah, while Hero Supermarket gained 0.79 per cent at 3,200 rupiah
Singapore was flat, easing 0.08 per cent, or 2.50 points, to 3,211.75.
Real estate developer Capitaland gave up 0.32 per cent to Sg$3.16 while oil rig maker Keppel Corp was down 0.65 per cent at Sg$10.74.
Kuala Lumpur shed 0.22 per cent, or 3.88 points, to 1,792.48.
AMMB Holdings lost 1.5 per cent to 7.49 ringgit, MISC eased 1.0 per cent to 5.20 while British American Tobacco gained 2.9 per cent to 64.80 ringgit.
Mumbai was flat, edging up 0.10 per cent, or 19.25 points, to 19,920.21 points.
Motorcycle manufacturer Bajaj Auto rose 2.73 per cent to 2,032.70 rupees while the grounded Kingfisher Airlines jumped 9.83 per cent to 5.14 rupees, on reports that a foreign investor may be interested in investing in the ailing airline.