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Asia falls on Fed, US debt concerns; Tokyo Electron surges 13%

Asian equities were mostly lower on Wednesday after Wall Street logged its fourth straight session of losses amid uncertainty surrounding U.S. budget discussions.

Japan's Nikkei, South Korea's Kospi, the Shanghai Composite and Indian stocks all posted losses under 1 percent while Australia's outperformed, bucking regional weakness.

"With the markets very light in terms of movement as investors continue to re-position themselves after the Fed meeting and now look to Washington regarding the debt ceiling, it feels almost like they are waiting to be spooked," said Evan Lucas, market strategist at IG in a note

(Read more: Why prospect of Fedtaper is looking more distant)

Asia-Pacific Market Indexes Chart

US debt threat

Concerns about the U.S. borrowing limit weighed on U.S. stocks overnight. Congress faces a Monday deadline to approve a resolution that would keep the government funded for a short time while they debate whether to raise the debt ceiling.

(Read more: Political sideshow could preoccupy US markets)

Meanwhile, comments from Federal Reserve officials added to confusion about when the U.S. central bank could trim down its monthly $85 billion bond-buying program.

New York Fed President William Dudley told CNBC on Tuesday that he supported the Fed's surprise decision at last week's policy meeting to maintain the quantitative easing program, contradicting earlier hawkish comments from Dallas Fed President Richard Fisher.

AMAT: Expect 3 point increase in market share

Nikkei slips 0.7%

Japan's benchmark index closed at a session low as a stronger yen continued to hurt sentiment. The currency hovered around the 98 handle against the greenback, well off lows hit around 100.60 earlier this month.

Tokyo Electron shares closed up 13.2 percent following news of a $9 billion deal with Applied Materials (AMAT). The deal is the largest since Citigroup's purchase of Japan's Nikko Cordial in 2007 and comes at a time when the Japanese government is trying to lure more foreign investment.

(Read more: AMAT, Tokyo Electron deal a vote of confidence in Japan?)

Speaking to CNBC, AMAT CEO Mike Splinter said "we think we'll gain at least 3 points in market share by putting our companies together and being able to help customers solve their high value problems faster and at lower cost. We should be able to improve our performance in the supply chain and save money."

Large-cap industrial exporters dragged on the index with construction equipment maker Komatsu and battery maker GS Yuasa lower by over 2 percent each.

Shanghai reverses gains

China's benchmark index staged a turnaround in afternoon trade to enter negative territory, closing just above sessions lows. But sentiment among investors remained upbeat after the official Xinhua news agency reported that the Shanghai free trade zone will be opened on Sunday.

Stocks expected to benefit from the project extended their rally. Shanghai Lujiazui Finance surged 10 percent while Shanghai Material Trading rose 4 percent.

Agricultural stocks rallied after wheat prices hit a record high due to dwindling supply, which could lead Beijing to increase the price it pays for national stockpiles. Huilong Agriculture surged 10 percent while Hainan Rubber jumped 7.5 percent.

Marc Faber: Chinese growth may slow to 4%

Lowest close for India in week

India's benchmark BSE index provisionally closed down 0.39 percent, marking its lowest close in a week. It was dragged down by blue-chip stocks, with Reliance Industries closing down 3.2 percent, and cigarette maker ITC ending 1.2 percent lower.

Sydney rallies 0.8%

Australian equities broke their previous rangebound trend to close above 5,270 points, within distance of last week's five-year high of 5,300.

Banks were in focus after the Reserve Bank of Australia said the nation's banks remained in good health and profitable. National Australia Bank jumped 2 percent while Westpac and Australia New Zealand Banking climbed 1 percent each.

Department store chain David Jones rose 5 percent despite reporting a 5.9 percent fall in full-year profit and flagging a gloomy outlook for 2014. Other retailers were also higher with Woolworths up 2 percent.

Seoul 0.4% lower

South Korea's benchmark index widened opening losses to fall below the 2,000 mark as investors remained on the sidelines amid Asia-wide weakness.

Memory chip makers led the declines with falls of 2.4 percent each in LG Display and SK Hynix following the announcement of the Applied Materials-Tokyo Electron deal.

Samsung Electronics eased 0.6 percent following an earlier 1 percent decline ahead of the global launch of it's Galaxy Note 3 Gear later on Wednesday.

— By's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC