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Asian shares retraced most of their early losses by midday Tuesday, even as the U.S. government shutdown dragged into its second week and spurred further concerns of a potential debt default.
"It's a pretty fickle market out there at the moment," said Shane Oliver, head of investment strategy at AMP Capital. "Markets are going to remain quite volatile" amid the U.S. budget negotiations.
Trading volumes are also relatively low, noted Song Seng Wun, an economist at CIMB in Singapore. "The plus and minus just reflects the cautious state of the market," he said. "If the week wears on and nothing comes in (on the U.S. budget negotiations), markets will give up their gains."
Japan's Nikkei 225 ended up 0.3 percent at 13,894.61 after falling as low as 13,748.94 in early trade, its lowest level in more than a month, while Korea's Kospi index tacked on 0.4 percent to 2002.76, after trading as low as 1981.21. Australia's S&P ASX 200 ended down 0.2 percent at 5148.10 after trading as low as 5124.7.
China's markets climbed in their first day of trade after the week-long Golden Week holiday, with the Shanghai Composite ending up 1.1 percent at 2198.19. Hong Kong's Hang Seng Index added 0.9 percent to 23,178.85.
"We have had better Chinese data released over the week as well as reports of a bumper retail sales and domestic tourism during the 'Golden Week.' Hence the shorter term effect may see domestic demand lending support to Chinese Indexes until reality of a [potential] U.S. default sinks in," said Desmond Chua, market analyst at CMC Markets, in a note.
In India, the Sensex gained 0.4 percent to 19,973.25 after the Reserve Bank of India on Monday cut an overnight interest rate as it continues to unwind recent measures to prevent funds from flowing out of the country.
In the U.S., the Dow Jones Industrial Average touched a one-month low, ending down 0.9 percent at 14,936.24, while the S&P 500 lost 0.85 percent to 1,676.12.
The U.S. government shutdown has entered a second week with no clear resolution in sight and there are concerns over whether lawmakers would meet the October 17 deadline to raise the nation's borrowing limit.
Traders may have taken heart from President Barack Obama saying he would accept a short-term increase in the debt ceiling to avert a default and give parties more time to negotiate a longer term solution.
In Japan, the current account surplus for August was reported at 161.5 billion yen, below economists' expectations, helping to take the yen off its early highs of around 96.55, its strongest against the U.S. dollar since mid-August. The U.S. dollar was fetching around 97.05, retracing back to Monday's levels.
Some resources shares lost ground as the U.S. debt ceiling worries weighed on commodity prices. In Australia, Newcrest Mining lost 2.3 percent. Warrnambool Cheese climbed 11.2 percent to 7.18 Australian dollars after its board recommended shareholders accept a A$7.00 a share takeover offer from Canadian dairy company Saputo.
In Hong Kong, shares tied to consumption, which typically gets a boost during China's holiday period, posted gains. Esprit climbed 4.9 percent; the Wall Street Journal reported Tiger Global Management increased its position in the company to 5.09 percent from 5.0 percent, citing securities filings. It was unclear where the filings were made.
Japan's Sharp Corp. edged down 0.3 percent to 290 yen, extending Monday's more than 8 percent decline on news that it is raising less money than planned in a share offering. Sharp set a price of 279 yen a share for a planned share offering to raise 119 billion yen, or around $1.23 billion.
Japan Airlines shed 1.9 percent to 5,700 yen after it ordered 31 A350 aircraft from Airbus, its first order from the European aircraft maker, in a deal announced officially after the market close on Monday.
— By CNBC.com's Leslie Shaffer. Follow her on Twitter @LeslieShaffer1