Japanese shares led a broad sell-off across Asia on Monday after Chinese factory data cast doubt on the strength of the mainland's recovery, while worries about a possible shutdown of the U.S. government escalated.
For the month of September, the Nikkei was Asia's best-performing index with gains of 8 percent while the SET came in second place with a 7 percent increase.
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US shutdown, China PMI weighs
Concerns about a potential U.S. government shutdown mounted over the weekend. On Sunday, the U.S. House of Representatives voted to delay President Obama's health care bill, known as Obamacare, for a year, as a condition for approving further government funding. Senate Democrats are expected to overturn the Republican measures on Monday, just hours before the October 1 deadline on federal government spending.
Meanwhile, China's final reading of manufacturing activity from HSBC came in at 50.2 in September, lower from a preliminary reading of 51.2 earlier this month. Still, the data was higher from August's 50.1 reading.
"This is as good as it gets for the time being. The data reflects the stimulus over the summer but don't expect too sharp of an acceleration from here," said Frederic Neumann, managing director & co-head of Asian economics research at HSBC.
Nikkei drops 2%
A stronger currency weighed on exporters as the yen climbed to a one-month high around 97.5 per dollar. Steelmakers Nippon Steel & Sumitomo Metal and JFE Holdings tumbled nearly 5 percent each.
Financials were dealt a blow after regulators accused Mizuho Financial of loaning money to the Yakuza mafia for more than two years. The lender skidded 4 percent, while Sumitomo Mitsui Financial and Mitsubishi UFJ lost 2.7 percent each.
Investors also digested mixed economic data. Manufacturing expanded at its fastest pace in September since the 2011 earthquake, while August retail sales beat estimates to surge 1.1 percent from 2012. But industrial output fell 0.7 percent from the previous month, suggesting that factory activity in Japan's export-heavy economy remains vulnerable.
(Read more: Japan seeks to galvanize share buying—will it work?)
The data will likely weigh on Prime Minister Shinzo Abe's decision to raise the nation's consumption tax, scheduled for October 1, as he decides whether economic growth is strong enough to sustain the tax hike.
Shanghai up 0.6%
China's benchmark index bucked Asia-wide weakness after the Shanghai free trade zone (FTZ) officially opened on Sunday but trade was cautious ahead of the week-long holiday starting October 1, known as Golden Week.
Stocks linked to the FTZ posted modest gains after falling on profit-taking in recent sessions. Shanghai Jinqiao Export jumped over 4 percent while Shanghai Waigaoqiao rallied 3.7 percent.
Retailers also lent support as investors bet on positive sales over the week-long holiday. Beijing Wangfuijing Department Store rallied over 6 percent while BesTV New Media surged by the daily trading limit of 10 percent.
The index continued to trade below its 200-day simple moving average (SMA) of 2,189 points for a second straight session.
Sydney slips 1.6%
Australia's share market fell from Friday's five-year high in its biggest one-day drop since early August, dragged down by steep losses in energy producers.
White Energy slumped 12 percent while Linc Energy and Paladin Energy lost 8 and 5 percent, respectively after Brent slipped below $108 a barrel.
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Meanwhile, the Australian dollar eased as much as half a percent against the greenback after China's weak factory data.
Investor attention turned to the Reserve Bank of Australia's (RBA) central bank meeting on Tuesday, where the central bank is widely expected to keep interest rates unchanged.
India down 1.2%
India's benchmark index fell to a three-week low on caution ahead of the April-June current account deficit data, due out later in the session.
Kospi eases 0.7%
South Korean investors shrugged off positive economic data and a stronger Japanese currency to track Asia-wide losses.
Industrial output hit a nine-month high in August, indicating that local manufacturers in South Korea's export-heavy economy are recovering. Still, blue-chip exporters headed lower with automakers Hyundai Motors down 2 percent while memory chip maker LG Display fell 3 percent.
— By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC