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Asia stocks cautious ahead of Fed but Japan bucks trend

Asian equities were lower on the final trading day of the week due to profit-taking and caution ahead of the Federal Reserve's policy meeting next week but Japan bucked the trend on media reports of Lawrence Summers as the next Fed chief.

(Read more: There's no stopping September, at least not yet)

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Fed meeting in focus

Investors in Asia took their cues from a lackluster U.S. session overnight, where stocks closed near their lows Thursday on fears the U.S. central bank may announce a tapering of its $85-billion-a-month asset-purchase program next Wednesday.

"Risk assets seem to be running out of steam heading into the weekend with a lack of fresh catalysts to keep pushing markets higher. At the same time U.S. economic data continues to suggests that tapering is indeed on track and this is resulting in a mildly cautious tone for some investors," Stan Shamu, market strategist at IG wrote in a note.

(Read more: Fed taper impact unclear, volatility certain: StanChart)

Shanghai slides 0.9%

China's benchmark index retreated further from the previous session's three-month high thanks to declines in drug makers.

News that a local firm has been caught up in the nation's corruption probe, the first accusation aimed at a Chinese drug maker, spooked the sector. Shenzhen Neptunus lost 2 percent while both Guilin Layn Natural and Lukang Pharmaceutical lost 1.7 percent each.

Airlines lent some support to the index. China Eastern Air surged nearly 7 percent while Hainan Airlines rose 2 percent after Goldman Sachs analysts said that domestic airline stocks will benefit from Shanghai's free-trade zone in a research note.

Nikkei up 0.1%

Japan's benchmark index erased earlier losses to crawl back into positive territory as the yen weakened 0.3 percent against the greenback following a Nikkei report that President Obama is set to name Lawrence Summers as the next chairman of the Federal Reserve.

Sharp was the index's worst performer, lower by nearly 5 percent on news that it will issue new shares in public share offering to raise as much as $1.5 billion.

The rest of exporters were mixed camera maker Konica Minolta down 3 percent while battery maker GS Yuasa rose over 2 percent.

Reports that Prime Minister Shinzo Abe will raise the 5 percent sales tax to 8 percent from next April weighed on risk appetite. Media also reported sources as saying that Abe has ordered an economic stimulus package that could total as much as $50 billion to cushion the tax hike's impact.

Tokyo financial markets will be shut on Monday for a national holiday.

Sydney down 0.4%

Australia's benchmark index hovered around 5,220 points in range-bound trade after briefly touching a five-year high in the previous session.

Gold miners were once again the session's biggest losers as spot gold headed for its worst week in two months. Medusa Mining lost 9 percent while Kinsgate Consolidated tanked over 7 percent and Perseus Mining lost 5.7 percent.

Casino operator Crown rose 1.3 percent after obtaining approval from the Sri Lankan government for a joint venture hotel and resort deal.

Kospi down 0.5%

South Korean investors tracked Asia-wide caution to fall below 2,000 points, retreating from the previous day's three-and-a-half month high.

The nation's second-largest carrier Asiana Airlines rallied 8 percent after saying it will strengthen pilot training following July's crash of one of its jets in San Francisco.

Steelmakers also weighed on the index. Blue-chip Posco fell 1.3 percent while Hyundai Steel lost over 3 percent.

India flat

India's benchmark index crawled along the flatline to hover around 19,780 points in afternoon trade while the rupee rose 0.3 percent to 63.5 per dollar.

— By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC