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Asian stocks drop as US default fears rise; Tokyo, Sydney at 1-month low

Asian equities erased early gains on Monday as concerns of a U.S. default escalated after the latest comments from politicians showed no signs of progress to resolve the budget standoff.

Japan's and Australia's both hit new one-month lows, Seoul's Kospi fell below 2,000 points and India's benchmark index lost over 1 percent. Chinese markets remain shut for public holidays and will re-open Tuesday.

(Read more: Moody's CEO: US default 'extremely unlikely')

Asia-Pacific Market Indexes Chart

US shutdown drags on

As the U.S. government shutdown wraps up day six, Speaker of the House John Boehner vowed not to allow a vote on raising the debt ceiling without having a "serious conversation" about reducing government borrowing. Speaking to ABC over the weekend, he added that the U.S. is on the path to a credit default.

"This has really rattled markets and is likely to result in further near-term weakness for global equities," said Stan Shamu, market strategist at IG in a note, referring to Boehner's comments.

(Read more: Wall Street gets ready to trade defaulted US debt)

Moody's CEO: Confident US will pay their bills

U.S. markets were resilient on Friday as the Dow Jones Industrial Average reclaimed its footing above 15000 mark but that optimism may ease on Monday after Dow futures dropped 81 points in Asian trade.

Nikkei falls 1.2%

Japan's benchmark index closed at a new one-month low for a second straight session as a stronger yen continued to hurt sentiment. The currency was 0.4 percent higher against the greenback at the 97 handle, near last month's five-week high of 96.93.

Among the biggest losers, Sharp skidded over 8 percent ahead of the pricing of a $1.5 billion share issue. Meanwhile, Tokyo Electric Power slumped 7.5 percent after it announced that a power failure hit several pumps used to cool its Fukushima nuclear reactors.

Airlines are in focus on news that Airbus has struck a deal with Japan Airlines (JAL). That saw JAL rally 3 percent while rival All Nippon Airways fell over 3 percent. JAL and Airbus are due to hold a news conference after 2pm Singapore/Hong Kong time.

(Read more: Airbus deal showsloyalty fading fast in aviation)

The benchmark posted a 5 percent loss for the week ending Friday, its biggest weekly decline since August.

US Trade Representative: TPP talks on track

Sydney 0.9% lower

Australia's share market hit its lowest level since September 9 thanks to steep losses in blue-chip banks and miners. Still, volumes were light with several states shut for public holidays.

Commonwealth Bank of Australia, National Australia Bank and Macquarie fell over 1 percent each while gold miners fell despite spot gold prices edging up in Asian trade, Kingsgate Consolidated lost nearly 4 percent.

Discovery Metals skidded 11 percent after one of its stakeholders, Singapore-listed Blumont, experienced a 75 percent drop in its share price on Monday, extending Friday's 56 percent fall. Blumont owns Bluemont Copper, which bought a 12 percent stake in Discovery last month.

Qantas Airways closed down 3.5 percent as its budget carrier Jetstar is set to take delivery of its first Boeing 787 Dreamliner.

(Read more: Week ahead for Asia: China back in action)

India falls 1.2%

Indian equities tracked Asia-wide losses while the rupee fell 0.6 percent to 61.7 per dollar. Despite the weakness, the index traded 1.5 percent above it's 200-day simple moving average (SMA) of 19,401 points.

Kospi eases 0.1%

Seoul's benchmark index closed just below the flatline after trading in a narrow 12-point range throughout the session. The Kospi was able to avoid larger losses after data showed foreign net inflows rose to a 20-month high in September.

Index heavyweight Samsung Electronics climbed over 1 percent after its third-quarter earnings guidance topped estimates on Friday. Other tech stocks followed its cue with LG Electronics higher by 1.6 percent.

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