Asian stocks held onto modest gains on Tuesday after the U.S. Congress failed to reach a compromise on a government spending bill, leading to the first partial federal shutdown since 1996.
Japan's Nikkei, South Korea's Kospi and Indian stocks were modestly higher but Australia's S&P ASX 200 closed down 0.2 percent. Among emerging markets, Thailand's SET index rallied 1.8 percent and the Jakarta Composite finished the session 0.7 percent higher.
US government shuts down
The White House ordered federal departments to execute shutdown plans after Democrats and Republicans failed to agree on a spending bill before Monday's midnight deadline (noon Singapore/Hong Kong time).
Earlier in the session, the Democratic Senate twice rejected the Republican-led House of Representatives demands to delay portions of the Obamacare health insurance initiative. Now, the two parties must strike a deal on raising the federal borrowing limit to avoid a debt default by October 17.
(Read more: The final hours before the government shutdown)
Chinese markets are shut until October 7th for the week-long Golden Week holiday, but the government still released the official purchasing manager's index (PMI). The index edged up to 51.1 in September, missing expectations for a 51.5 figure. Still, the data was better than August's reading of 51.
Nikkei up 0.2%
Japan's benchmark index pared gains following an earlier 1 percent spike after Prime Minister Shinzo Abe decided to raise the national sales tax to 8 percent from 5 percent next April. Investors are now expecting a hefty stimulus package worth $50 billion to help mitigate the tax hike impact.
"What we need in Japan more than anything is clarity and trustworthiness of the government. That's exactly what Prime Minister Abe is delivering and that's good news for anybody who has a long-term investment horizon," said Jesper Koll, head of Japanese equity research at JP Morgan Securities Japan.
A weaker currency also lent support as the yen bounced off the previous day's one-month high. Index heavyweight Softbank rose 2.5 percent, chemical producer UBE Industries jumped 5 percent and battery maker GS Yuasa climbed 3 percent.
Stock market gains were also underpinned after sentiment among Japanese big manufacturers improved in the three months to September for a third straight quarter, according to the Bank of Japan's closely-watched Tankan survey.
Sydney down 0.2%
Australian shares ended near session lows in a relatively quiet session after the Reserve Bank of Australia's (RBA) left its main cash rate steady at a record low of 2.5 percent in a widely-expected move.The RBA said it expected below-trend growth to continue in the near term while stressing that a lower currency would help with economic re-balancing.
The Australian dollar rose nearly 1 percent to a session high of $0.9394 after the news.
But retailers rallied after a better-than-expected 0.4 percent rise in August retail sales. David Jones closed up 1.4 percent and Harvey Norman climbed over 2 percent .
Kospi adds 0.1%
South Korea's benchmark index inched higher thanks to strong foreign inflows. Foreigners were net buyers of local stocks for 25 consecutive sessions on Tuesday.
But stock market gains were limited on the back of lackluster economic reports. Central bank data showed September exports falling 1.5 percent from a year ago.
Emerging markets rally
Developing markets posted the biggest gains in the Asian session. India's benchmark added half a percent on the back of positive comments from Economic Affairs Secretary Arvind Mayaram. He said the nation would fully finance the current account deficit and grow 5 percent in the 2013 financial year.
— By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC