Asian shares rebounded on Wednesday after Federal Reserve Chairman Ben Bernanke confirmed his commitment to monetary easing. Stocks in Tokyo however, bucked the trend as a strengthening yen dealt exporters a blow.
Overall market sentiment remained frail a day after Italy's inconclusive elections re-ignited fears of a euro zone financial crisis. A sale of 10-year Italian government bonds later in the day meanwhile could be test of investor sentiment in the wake of the elections.
"While (coalition) discussions continue, markets will remain nervous, as this is threatening to unravel 15 months of austerity measures and pull Italy back towards the brink," Jason Hughes, head of premium client management at IG Markets, said in a note.
Worries about U.S. spending cuts that will take effect on Friday unless lawmakers can reach a budget deal also tempered gains in equity markets.
A second straight day of declines in Tokyo saw the retreat further from Monday's 53-month peak of 11,662, while Shanghai traded near one-month lows. In contrast, positive earnings news helped Australia's move closer to last week's four-and-a-half year high.
In Japan, currencies remained the main focus. The yen, viewed as a safe-haven, was trading at 91.70 per yen, up about 0.25 percent against the dollar and within sight of one-month high hit on Monday as jitters about Italy sparked a move into safe-haven assets.
Yen gains weighed on major Japanese exporters such as Fanuc, Canon and Toyota Motor, which all slumped over 2 percent.
Shorting the yen has been a favored trade for investors in recent months and expectations that Asian Development Bank President Haruhiko Kuroda, a long-standing advocate of aggressive monetary easing, will be nominated as the next Bank of Japan governor had helped drive the yen lower and in turn boost the Nikkei to 53-month peaks seen at the start of the week.
One analyst told CNBC that this week's moves in dollar/yen were disconcerting because they suggested a risk-off trading environment was back.
"When I see a hard sell-off like that, it reminds you of those dark days around (the collapse of investment bank) Lehman Brothers (in 2008) and then you begin to wonder if it's really over or if today was just the calm before the next leg down," said Ed Ponsi, managing director at Barchetta Capital Management, referring to a slight stabilizing in currency markets.
Hong Kong shares recovered from a 2-month low, supported by a near 4-percent gain for AIA shares after the Asian insurance giant posted an 89 percent increase in 2012 net profit.
Property remained in focus after Hong Kong's government in its budget pledged more public housing and land supply to tackle home affordability. Shares rose across the board with China Merchants Property and Poly Real Estate leading gains with a rise of 4 and 2 percent respectively.
However, some analysts warned the current optimism would not last. "We expect housing prices to fall in the near term as the government is seeking power to adjust the stamp duty rates and regime without a new bill... Share prices of property developers will under-perform in the coming weeks," Kelvin Tay, regional chief investment officer at UBS Wealth Management told CNBC.
Financials lifted the higher, with China Minsheng Bank up 2 percent and Citic Securities rising 3 percent after China's central bank signaled it would resume injecting liquidity into the market on Thursday.
Shares in banks and brokerages fell under pressure earlier this week amid fears that Beijing would embrace new tightening measures after the People's Bank of China drained funds on Tuesday.
Seoul's blue-chip stocks helped the benchmark Kospi end a two-day loss as this week's weakness in the won's exchange rate against the yen lured investors back into exporters.
Automakers Hyundai Motor and Kia Motor rose 0.7 and 1.6 percent respectively, bouncing back from sharp losses in the past two sessions.
In Sydney, shares of AGL Energy rallied nearly 5 percent after Australia's second-largest electricity company recorded a 20 percent rise in first-half net profit.
Gold miners such as Perseus Mining and Northern Star closed up 4 percent after the precious metal posted its biggest one-day gain in three months.