Asian bourses trimmed losses late Monday, after posting steep declines in early trading as investors fretted about the relentless slide in energy prices. Declining manufacturing sentiment in Japan and a hostage incident in Sydney also dampened sentiment.
It comes after U.S. stocks finished sharply lower at the end of last week, with benchmark indexes posting sizable weekly losses, as crude's ongoing slide rattled investors. The Dow Jones Industrial Average declined 1.8 percent on Friday, down 3.8 percent from the week-ago close, its worst weekly loss since November 2011. Recording its worst weekly hit since May 2012, the S&P 500 plunged 1.6 percent while the tech-heavy Nasdaq Composite dropped 1.1 percent.
Brent crude gave up some of its gains and dropped towards $62 a barrel on Monday in volatile trading, which saw prices fall to a five-and-a-half-year-low after the IEA cut its outlook and then rise more than a dollar on hopes of improving manufacturing data. U.S. crude for January delivery was down 95 cents at $56.86 a barrel,after hitting a low of $56.25, down 2.7 percent, the lowest since May 2009.
"Today was going to be a rough day for trading in Asia," Richard Iley, chief economist for Asia at BNP Paribas told CNBC Asia's "Squawk Box. "Wall Street was down heavily [and] we got continued dramatic falls in oil prices... [With this] generalized pick-up in market volatility, there will always be red arrows today."
Business sentiment in Japan worsened in the fourth quarter, data showed on Monday. The big manufacturers index slipped to +12 from +13 in the previous quarter, below expectations for a reading of +13 in a Reuters poll, the Bank of Japan's Tankan survey showed.
India's wholesale price inflation eased for a sixth straight month in November, government data showed late Monday. The wholesale price index (WPI) was flat against a year earlier and compared with a 1.41 percent on-year jump forecast by economists in a Reuters poll.
Tokyo sinks 1.6%
Japan's benchmark Nikkei 225 finished at a four-week low on Monday, overlooking a landslide victory by Prime Minister Shinzo Abe at the snap election over the weekend and a rebound in dollar-yen. Apart from a trough in oil prices, the Tankan survey revealing worsening business sentiment in the country hurt sentiment.
Thai stocks fell sharply in afternoon trading. The SET Index fell as much as 8 percent, according to Dow Jones, before recovering to trade 3.8 percent down. Local traders cited margin calls on retail investors, the news wire reported. It comes after the country's top energy company PTT issued a warning that its net profit this year could be lower than the $2.9 billion it earned in 2013.
Sydney drops 0.6%
Australian equities closed down for the fifth consecutive session as falling commodity prices took a toll on the resource-heavy index and a wider than expected forecast for the country's domestic budget deficit curbed trading sentiment. Earlier, the benchmark S&P ASX 200 index hit a nine-week low of 5,146 points in the morning session.
Newcrest Mining shed 0.5 percent on news that the gold miner was planning to split the development of its Golpu deposit in Papua New guinea into two stages as it seeks to reduce spending and improve returns.
Meanwhile, Australian police cordoned off one of Sydney's main business areas on Monday, after hostages were being held in a cafe.
While some traders think that the incident may have prompted a flight to safety, some beg to differ. "We are heading into the Christmas break period [which] is a seasonally quiet period. Also, there has been focus on the volatility in the oil price and the US Fed meeting later this week," Martin Lakos, division director at Macquarie Private Wealth told CNBC's "Street Signs Asia." "Clearly, there is more discussion on what the Fed will do this week."
The Australian dollar traded at $0.8247 against the U.S. dollar at 1400 SIN/HK, near its lowest since mid-2010.
Mainland shares mixed
China's benchmark Shanghai Composite index reversed losses in the final hour of trade to close up 0.5 percent.
However, a broad decline in property developers capped gains. Poly Real Estate and Vanke tanking 5.3 and 4.2 percent each.
In Hong Kong, the key Hang Seng index plunged 1 percent in the afternoon session to hover near the key 23,000 level.
South Korea's Kospi index clawed back losses from Monday morning's eight-and-a-half-week low to settle marginally below the flatline, as retailers outperformed on expectations that the government may be lifting regulations to allow major supermarts to operate on weekends. Shinsegae added 0.8 percent while its affiliate E-mart rocketed nearly 6 percent.
Emerging markets tumble
Commodity-related stocks dragged down Southeast Asian markets on Monday.
Indonesia's Jakarta Composite index dropped 0.4 percent to hit its lowest levels in nearly three years while the local rupiah fell to its lowest level since August 1998 on Monday, trading at 12,650 against the greenback.