Asian equities were mixed on Thursday after Chinese manufacturing data hit a seven-month high in October and a rise in mainland money market rates triggered liquidity fears.
Japan's Nikkei and South Korea's Kospi erased earlier gains to enter positive territory, Australia's S&P ASX 200 hovered near the previous day's five-year high and Indian stocks hit a new three-year high. Meanwhile, the Shanghai Composite hit a one-month low.
"I don't expect to see a [credit crunch] like June. Clearly now, there's a struggle within Beijing on how much to emphasize restructuring, liquidity, and asset bubbles. [These are] the same problem problems you find everywhere else. I don't think China is that dramatically different," said Viktor Shvets, head of strategy research, Asia at Macquarie
(Read more: China unlikely to see a repeat of June cash crunch)
China credit, manufacturing in focus
Chinese short-term money market rates are in the spotlight after the People's Bank of China decided not to inject cash into the system for the third time in two weeks. The seven-day repo rate opened at 5 percent in early trade before falling back down to around 4.7 to 4.8 percent.
"Why is the PBOC standing aside and letting lending in the interbank market dry up? It wasn't just the September house prices that can be attributed to the tightening in financial conditions; we have witnessed a record level of hot money flowing into Chinese banks" said Chris Weston, market strategist at IG.
Meanwhile, HSBC's China flash Purchasing Managers' Index (PMI) rose to a seven-month high in October at 50.9. The figure was higher than the previous month's reading of 50.2 and is the latest piece of positive data to emerge from the world's second-largest economy following last week's upbeat third-quarter GDP report.
Shanghai down 0.9%
The benchmark index fell to its lowest level since late September, trading at a 35-point discount to its 200-day simple moving average (SMA) of 2,199 points.
Banks are in focus after a report on Wednesday said that top lenders wrote off about $3.7 billion in bad debt for the first six months of the year. Bank of China, China Construction Bank and Bank of Communications fell 1 percent each.
Real-estate developers weighed with Vanke and Gemdale down 1.2 percent each after state news agency Xinhua reported that Beijing authorities may bar developers from selling homes if they don't accept the government's price guidance.
Nikkei up 0.4%
Japan's benchmark index reversed earlier losses in the final hour of trade, bouncing off a two-week low. The Nikkei rose as high as 14,499 points — a 226 point increase from its intraday low. Meanwhile, dollar-yen rose 0.2 percent but still continued to trade below the 98 handle.
Industrial manufacturers like Hitachi Construction Machinery and Komatsu skidded 1.4 and 2 percent, respectively after U.S. peer Caterpillar missed earnings expectations and slashed its full-year revenue guidance.
Among consumer electronic stocks, Hitachi climbed 8.4 percent after the electronics firm's operating profit rose 6.6 percent in the April-September period. Panasonic rose 1.5 percent after the Nikkei newspaper reported that it plans to cut back on chipmaking.
Sydney up 0.4%
Australia's benchmark index managed to hold onto gains as investors cheered October's HSBC China flash PMI figure, closing just 2 points shy of a new five-and-a-half year closing high.
Meanwhile, the Australian dollar rose 0.2 percent against the greenback but still remained well off the previous day's four-and-a-half month peak of $0.9758.
Strength came from healthcare shares. Cochlear, Resmed and Ramsay climbed over 1 percent each while financials like Commonwealth Bank of Australia and Australia New Zealand Banking also lent support, higher by 1.3 percent each.
Kospi rises 0.5%
South Korean equities also erased losses, tracking the Nikkei's gains, after touching a one-week low at the 2,033 mark in early trade.
LG Electronics rose 0.6 percent after posting its lowest quarterly profit for 2013.
India outperforms by 1%
The Bombay Sensex climbed above the 21,000 mark for the first time since 2010 thanks to robust foreign inflows while the rupee traded at 61.4 per dollar.
— By CNBC.com's Nyshka Chandran. Follow her on Twitter