Japan recession hits Nikkei; Chinese shares mixed on trade connect

Asian markets were mixed on the first trading day of the week, hit by unexpected news that Japan had slipped into recession, and as mainland markets reacted to the launch of the Shanghai-Hong Kong stock connect.

Japan's economy shrank in the third quarter, data showed on Monday, defying expectations for growth. Gross domestic product (GDP) contracted an annualized 1.6 percent, compared with a Reuters forecast for a 2.1 percent gain. The economy contracted 7.3 percent in the second quarter.

U.S. stocks finished flat last Friday, with the S&P 500 rising a fraction of a point to notch another record, as investors tracked the price of oil and after October retail sales rose 0.3 percent, just above expectations, along with a jump in consumer confidence for November.

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Tokyo skids 3%

Grim economic data led Japan's Nikkei 225 index to post its biggest one-day drop since August on Monday and eventually settling at a near a one-week low. Meanwhile, after hitting a seven-year high of 117.04 earlier in the morning session, the dollar-yen pair retreated to 115.7 late Monday.

The benchmark index had rallied to a seven-year peak last week, boosted by talks of a delay in the sales tax hike and that Prime Minister Shinzo Abe could call for a snap elections.

"The miss from today's reading is likely to be a 'back to the drawing board' scenario and this brings uncertainty. As a result the Nikkei pulled back significantly and dollar-yen's run also stalled," wrote IG's market strategist Stan Shamu.

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"While the delay to the sales tax hike now seems to be a done deal, the election remains debatable. The fact the Japanese public has mixed feelings about Abenomics could make it harder to call it on the back of this disappointing GDP reading. Unless Shinzo Abe can come to the table with new ideas and convince the public his goals are still achievable, it seems opposition to his methods is only likely to grow," he added.

Among top losers, Sony and Fast Retailing plummeted more than 3 percent each.

Mainland shares lower

Amid choppy trade, China's Shanghai Composite index concluded the first day of the Shanghai-Hong Kong "through train" program by ending 0.2 percent lower. The bourse received a boost in the morning session but lost all gains in the last hour of trade.

Hong Kong's Hang Seng Index fell 1 percent, after hitting a two-month high of 24,313 on the back of stock connect-induced euphoria in the morning session. This is due to the volume of "northbound trade" - investors with Hong Kong accounts buying mainland shares - being far greater than trade from Chinese investors in the opposite direction. According to Reuters, all of the daily 13 billion yuan "northbound" quota had been used by mid-afternoon trading.

"[In Hong Kong today] a lot of investors are taking profit. The initial response was calmer than many people have thought because the southbound quota isn't not that great," Jackson Wong, associate director at United Simsen Securities, told CNBC's "Street Signs Asia." "Investors are still adjusting their buying interest into Hong Kong stocks."

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Sydney drops 0.8%

Australia's S&P ASX 200 index closed at a three-and-a-half-week low of 5,412 as losses in the healthcare and banking sectors weighed on the bourse.

CSL, Cochlear and Sonic Healthcare dropped nearly 1.5 percent each as investors booked profits following recent hefty gains. Financial shares such as Australia & New Zealand Bank and Westpac Bank retreated 1.3 and 1 percent respectively.

Meanwhile, the country is set to ink a landmark trade deal, more than a decade in the making, with China, Australian Prime Minister Tony Abbott announced on Monday.

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Seoul flat

South Korea's benchmark Kospi index recovered but finished near a session low of 1,935 on Monday.

A rebound in some blue-chip majors capped losses; Hyundai Motor and Samsung Electronics reversed losses to rise 0.3 and 1 percent, respectively, while Kepco closed down 2.2 percent.