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Asian shares decline ahead of Fed meeting; Shanghai skids 2%

Asian equity markets ended mostly lower on Tuesday amid anticipation of a reduction in U.S. stimulus ahead of the Federal Reserve's two-day policy meeting.

The Shanghai Composite hit a one-week low while Japan's Nikkei, South Korea's Kospi both posted modest losses. Australia's S&P ASX 200 outperformed to close at a new five-year high and Indian stocks closed 0.31 percent higher.

"There is a feeling that markets globally are gunning for a correction. It would be healthy and would take the 'twilight' concern out of the market as hedge fund managers scream about overvalue, bubbles and liquidity issues," Evan Lucas, market strategist at IG wrote in a note.

(Read more: Trading the Fed taper: Avoid the dollar)

Symbol
Name
Price
 
Change
%Change
NIKKEI
---
HSI
---
ASX 200
---
SHANGHAI
---
KOSPI
---
CNBC 100
---

Fed in focus

Investors will be closely watching the Federal Open Market Committee's policy decision on Wednesday, when the central bank is widely expected to begin tapering its monetary stimulus program. The latest Reuters poll showed economists expect the central bank to cut bond purchases by $10 billion from the current $85 billion per month.

"As markets brace for the Fed to announce modest tapering plans, risk assets are set to remain supported, especially given expectations that the Fed will counter tapering with reinforced forward guidance," said Mitul Kotecha, managing director at Credit Agricole in a note.

(Read more: Fed taper likely to start this week: El-Erian)

Shanghai down 2%

China's benchmark stock index fell to its lowest level since September 9 due to declines in property and banking stocks ahead of public holidays later this week.

Real-estate developers China Merchants Property slumped 10 percent while Poly Real Estate lost 3.7 percent. Amid financials, Pudong Development Bank tumbled over 5 percent while China Merchants Bank eased 4 percent

Investors shrugged off positive foreign direct investment data (FDI). For the first eight months of the year, FDI rose 6.3 percent from the same period of 2012.

Nikkei slips 0.6%

Japan's benchmark index widened its losses in afternoon trade as it played catch-up with the region after being shut on Monday for a long weekend.

Telecom stocks weighed on the index on fears of increased competition after NTT DoCoMo announced last week that it will start to offer Apple's iPhones. KDDI lost 7 percent, while Softbank fell 3.5 percent.

(Read more: Japan on course for longest run of trade deficits)

Pharmaceutical firm Daiichi Sankyo lost nearly 7 percent after U.S. regulators restricted imports from its Indian unit Ranbaxy Laboratories.

Kospi eases 0.4%

Seoul stocks fell on profit-taking after rallying to a six-month closing high on Monday. Weak economic data also weighed on sentiment with August producer prices down 1.3 percent on-year, compared to July's 1 percent loss.

Samsung Electronics slumped nearly 3 percent while LG Display lost 1.3 percent after several brokerages cut earnings forecast for both tech firms on concerns that declines in emerging market currencies would weaken their profitability.

(Read more: Already! Samsung maybe working on new smartwatch)

South Korean markets will be shut from Wednesday for the Thanksgiving holidays and will re-open next Monday.

Sydney flat

Australia's S&P ASX 200 index eked out slight gains in the final hour of trade to close at a new five-year high for a second consecutive session.

A dovish tone from the nation's central bank also lifted sentiment. Minutes from the Reserve Bank of Australia's September policy meeting showed it would maintain its easing bias but signaled no urgent need to act.

(Read more: Australia's post-election cheer may prove shortlived)

Gold miners weighed as spot gold traded near a five-week low. Perseus Mining fell 5 percent while Newcrest Mining declined 2.3 percent.

India steady

India's benchmark index crawled along the flatline before closing 0.31 percent higher at 19,804 on Tuesday. The rupee weakened 1 percent to 63.46 per dollar, well-off Monday's one-month high of 62.44.

Sentiment was also lower after the nation's headline inflation shot up to a six-month high in August, due to a 245 percent annual rise in onion prices.

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

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