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Asian stocks cautious as Senate talks watched; Shanghai skids over 1%

Asian equity markets were in a holding pattern on Wednesday as investors awaited a possible deal from U.S. Senate lawmakers to avert a debt default ahead of Thursday's deadline.

Amid losers, the Shanghai Composite hit a one-week low and South Korean stocks closed down 0.3 percent. Japan's Nikkei and Australia's meanwhile, both ended marginally above the flatline. Indian markets were shut for holidays.

"With just hours to go until the [debt] deadline, nerves will be playing on traders' minds as they will continue to be on U.S. political headline watch. As a result, trade will be extremely choppy until we get an outcome," said Stan Shamu, market strategist at IG.

(Read more: Markets trust Washington, but for how long?)

Asia-Pacific Market Indexes Chart

Senate talks watched

U.S. Senate leaders adjourned negotiations on legislation to avert a government default and will continue talks at noon Wednesday EST. The decision for Senate lawmakers to resume talks comes after a failed attempt in the House of Representatives to hold a vote on a short-term funding bill.

The Senate deal will reportedly extend the government's borrowing authority until February 7 and re-open federal agencies that have been shut since October 1. It would also fund the government through January 15.

Fresh hope for debt deal as Senate resumes talks

The back-and-forth news comes one day before the Treasury Department says it will be unable to borrow and will have to rely on a cash cushion to pay the country's bills.

(Read more: Washington deadline could be nail biter for markets)

Meanwhile, Fitch Ratings put the U.S. government's AAA credit rating on "rating watch negative," saying that the standstill on budget negotiations risks undermining the effectiveness of the country's political institutions.

Nikkei 0.2% higher

Japan's benchmark index bounced between gains and losses in choppy trade to finally post a sixth straight session of gains as the yen lingered near a two-week low against the greenback.

Telecoms group Softbank rallied over 2 percent on acquisition news. The firm is buying a 51 percent stake in Finnish mobile game maker Supercell for $1.5 billion. Separately, the Nikkei newspaper also reported it is in talks to buy a stake in U.S. wireless device distributor Brightstar.

Insurers rallied as the nation's Pacific coast deals with a strong typhoon that has killed four people so far, while the city of Tokyo escaped major damage. NKSJ Holdings rose 2.7 percent while Tokio Marine jumped 3 percent.

Shanghai slips 1.8%

China's benchmark index fell below 2,200 points to hit its lowest level since October 10 as investors were cautious ahead of Friday's data deluge, which includes third-quarter GDP, industrial production, retail sales and fixed-asset investment figures.

How long can China's growth momentum last?

Real-estate developers were mostly to blame with Shanghai Shimao down 5 percent and China Merchants Property falling 3 percent.

Liquor producer Kweichow Moutai pared gains following an earlier 1.6 percent spike after its net profit growth grew 6.2 percent for the first nine months of the year.

In Hong Kong, i-CABLE Communications skyrocketed as much as 160 percent after receiving initial approval to compete in Hong Kong's free-television market after new permits were given for the first time in nearly 40 years.

(Read more: China's foreign reserves surge, are currency wars back?)

Sydney steady

Australian equities traded in a narrow 29-point range after hitting a new two-week high at 5,268 points earlier in the day for a second straight session.

Whitehaven Coal climbed over 4 percent as Brent crude prices steadied above $110.

Global miner Rio Tinto extended gains by 1.4 percent after announcing that its iron ore and thermal coal output hit record highs in the third quarter on Tuesday.

Blood products maker CSL rallied over 1 percent after announcing a $905 million share buyback. It also trimmed profit growth guidance to 7 percent from previous estimates of 10 percent for the current fiscal year.

(Read more: Companies worry about 'stepping on a bomb')

Kospi 0.3% lower

South Korea's benchmark index reversed earlier gains to enter negative territory despite signs of continued foreign buying.

Blue-chip stocks capped larger losses. KB Financial climbed nearly 4 percent and Hyundai Motor rose 1 percent.

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