Asian shares closed lower on Monday, with uncertainty over U.S. budget negotiations weighing on stocks on the last trading day of the year. Trading volumes were relatively subdued as many Asian markets were shut.
The Australian, New Zealand, Singapore and Hong Kong markets have shortened sessions on New Year's Eve, while markets in Japan, South Korea and Taiwan are closed for a public holiday.
Australia's benchmark closed 0.5 percent lower at 4,648.95, while in New Zealand, the stock market fell 0.35 percent to 4,066.51. Big miners and banks lost ground as investors awaited the outcome of U.S. budget talks.
Both BHP Billiton and Rio Tinto lost 0.8 percent, while gold miner Newcrest Mining ended 1.5 percent lower.
The banking sector was weaker as well, led by a 0.9 percent drop in Westpac Banking. Australia and New Zealand Banking bucked the trend and gained 0.2 percent.
Shares in Fairfax Media rallied 7.4 percent after a consortium of allies of shareholder Gina Rinehart purchased a small holding to add to the mining mogul's stake.
The Australian market has risen 14.6 percent in 2012, the best yearly gain since the economic recovery of 2009. New Zealand's benchmark NZX 50 index has gained 24.2 percent for the year.
U.S. fiscal woes remain firmly in focus, with news of a setback in talks between lawmakers in Washington to reach a deal to avert a fiscal crisis - some $600 billion worth of spending hikes and tax cuts are due to kick in January 1 and the failure to prevent the "fiscal cliff" could set financial markets up for a volatile start to the New Year.
U.S. shares took a beating on Friday, closing for a fifth-straight session as skepticism grew that lawmakers would reach a deal to avoid the "fiscal cliff."
Hong Kong shares closed the year's trading near their highest close in almost 18 months, with Chinese insurers and brokerages helping the benchmark indexes close out their best year since 2009.
The Hang Seng Index ended flat on the day at 22,656.9 points, near its highest close since early July 2011. This year, the index has gained nearly 23 percent.
The mainland Chinese markets looked set for their first annual gain in three years, as investors cheered a plan allowing eligible securities houses, insurers' asset management units and private equity funds to develop and manage mutual funds. Citic Securities, China's largest listed brokerage, rose 2.2 percent in Hong Kong.
The Shanghai Composite Index ended the day about 1.6 percent firmer at 2,269.13, its highest since June 20. This brought the index's gain this year to 3.2 percent, its first annual gain in 3 years.
China's markets will be shut Jan. 1 to 3 and will reopen for the new year on Friday, Jan. 4.
Singapore shares slipped 0.8 percent to 3,167.08, snapping four straight sessions of gains. The Straits Times Index has gained 20.6 percent since the start of the year, its best yearly rise since 2009, when it surged 64 percent.
In India, the BSE index ended Monday 0.14 percent lower, while the NSE index was 0.15 percent lower.