Chinese stocks hit 5-month closing low on credit squeeze fears

China's benchmark Shanghai Composite closed at its lowest levels since August 23 on Friday due to concerns of tight liquidity while trade in the rest of Asia was mixed following a record close on the Dow overnight.

Chinese money market rates rose for a third straight session with the benchmark seven-day bond repurchase agreement hitting its highest level since June 24. The move came even after the People's Bank of China's took emergency steps on Thursday to inject liquidity into selected banks.

"Trade today will be interesting from an Asian-centric point of view, as the Chinese repo rates continue to react to policy changes around banking. The changes by the PBOC and the central government are very positive steps towards a more liberal and freely floating interbank lending rate, and provide insight into the steps that may be taken to see a freely floating CNY in years to come, said Evan Lucas, market strategist at IG in a note.

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Shanghai skids 2%

Financials led the decline in Shanghai with Merchants Bank down 3.5 percent and Hua Xia Bank 4 percent lower. Gold miners also underperformed as bullion prices hovered near six-month lows. Shandong Gold led losses by over 5 percent while Zhongjin Gold lost 4 percent.

In Hong Kong, China Everbright Bank tumbled as much as 5 percent in its debut after raising $3 billion in its IPO, which is the lender's third attempt to list on the stock market.

(Read more: Third time's no charm for biggest Hong Kong IPO)

Nikkei flat

Japanese stocks reversed earlier losses to close in positive territory after the yen hit a new five-year low against the greenback following the Bank of Japan's decision to leave monetary policy unchanged at the conclusion of its two-day meeting.

But blue-chip stocks were unable to gain traction from a weaker yen due to profit-taking. Nissan Motor and KDDI fell over 2 percent each.

Panasonic rose 0.2 percent after announcing that it will shut two Japanese semiconductor factories next fiscal year, part of efforts to kick-start the business by scaling back production.

Sydney 1.2% higher

Australia's benchmark S&P ASX 200 rose to a new two-week high, extending gains from the previous day's 2 percent rally, thanks to support from financials. Australia New Zealand Banking rallied 2 percent while Commonwealth Bank of Australia rose 1.4 percent.

Telstra rose 1.7 percent after announcing that it will sell its majority stake in Hong Kong-based mobile business CSL to HKT for $1.8 billion.

Meanwhile the Australian dollar rebounded after sinking to a new three-and-a-half year low of $0.8820 U.S. cents for a second straight session overnight.

(Read more: Sit up and take notice, Aussie pain is here to stay)

Kospi up 0.4%

A weaker currency supported South Korea's benchmark Kospi as the won hovered near the previous day's two-week low of 1,062 per dollar.

Hyundai Motor and Kia Motors jumped 1.8 and 2.2 percent respectively, as investors went bargain hunting following the previous day's sharp losses.

Emerging markets mixed

Indonesia's Jakarta Composite and Philippine shares fell around 1 percent each while Indian shares closed 1.79 percent higher.

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