Asia Close Lower on US Budget Impasse Anxiety

Asian shares retreated from earlier session highs to close lower on Friday after a Republican proposal to deal with a U.S. fiscal crunch failed to get enough support, deepening the threat of a recession in the world's largest economy.

U.S. House of Representatives Republicans said on Thursday that House Speaker John Boehner's decision to pull the "fiscal cliff" legislation due to lack of votes left uncertain the future of negotiations to avert automatic spending cuts and tax increases in January.

ASX 200
CNBC 100

The FTSE CNBC Asia 100 index declined 0.9 percent.

Japan's Nikkei average erased earlier gains and turned lower on Friday after a Republican proposal to avert with a U.S. fiscal crunch failed to get enough support, triggering selling in exporters as the yen strengthened.

The benchmark index closed down 0.99 percent at 9,940, falling below the 10,000-mark after initially jumping 1.2 percent while the broader Topix shed 0.70 percent to 832.7.

Automakers suffered steep falls with Mitsubishi Motors slumping 5.8 percent while Nissan Motor and Toyota Motor lost 2.4 percent.

Olympus dropped nearly 2 percent after saying that a planned merger of its medical business with Sony would take longer than expected due to delays in obtaining regulatory approval abroad.

(Read more: Ex-Singapore Banker Arrested in Olympus Fraud)

Onshore China shares slipped from Thursday's four-month highs, dragged down by resource-related sectors that helped trim index gains this week.

The CSI300 of the top Shanghai and Shenzhen closed down 0.5 percent on Friday, but rose 0.7 percent on the week to 2,372 points. The Shanghai Composite Index shed 0.7 percent on Friday but inched up 0.1 percent this week.

Chinese banking and energy majors were among the biggest losers; Industrial and Commercial Bank of China (ICBC) dived 2.1 percent, while China Coal Energy fell more than 2 percent. CNOOC, Petrochina and Sinopec all fell 1.2 percent.

Hong Kong shares posted their worst day in three weeks and their first weekly loss in five, as investors cut risk at the end of the last full trading week this year after talks stalled on a deal to avert a fiscal crisis in the United States.

The Hang Seng Index closed down 0.7 percent on the day and down 0.4 percent on the week at 22,506.3. The China Enterprises Index of the top Chinese listings in Hong Kong shed 1.1 percent on Friday and 0.7 percent this week.

Low turnover and strength in defensive plays such as Hong Kong utilities further pointed to risk aversion at the end of the last full trading week in 2012. Next week, Hong Kong markets will shut from noon on Monday and resume trading only on Thursday.

Anta Sports jumped 3 percent to HK$6.54 after UBS raised their price target from HK$7.50 to HK$9, expecting Anta to be among the survivors of an ongoing consolidation in Chinese sportswear brands.

Seoul shares ended down on Friday to post their first weekly loss in five weeks after U.S. House Speaker John Boehner abandoned his "fiscal cliff" plan, muddying the outlook for a deal aimed at averting a recession.

(Read More: Can South Korea's New President Keep 'KOSPI' Pledge?)

The Korea Composite Stock Price Index fell nearly 1 percent to 1,980.4 points.

Heavyweight Samsung Electronics slumped 4.1 percent, marking its biggest daily percentage decline since Aug. 27 after it was accused of breaking competition rules by E.U regulators.

Other tech shares also dragged the index down with LG Display easing 3.5 percent and SK Hynix slipping 3.4 percent.

Australian shares slipped 0.2 percent on Friday pulled down by shares in mining and gold as news of a Republican collapse in the U.S. "fiscal cliff" wrangle weighed on investor sentiment leading up to the Christmas break.

The benchmark S&P/ASX 200 index was 10.5 points lower at 4,623.6, still near the highs reached earlier this week.

Miners BHP Billiton and Rio Tinto both lost 0.9 percent. Gold miner Newcrest Mining slipped 0.1 percent while Evolution slumped 6.4 percent.

Banking stocks were higher with Commonwealth Bank of Australia leading gains by 0.8 percent.

Billabong shares gained.3.1 percent after surging as much as 5 percent after the firm announced Thursday its Chief Financial Officer Craig White has left the company.

New Zealand's benchmark NZX 50 index ended 0.5 percent lower at 4,054.7 points.

Over in Southeast Asia, Singapore's Straits Times Index ended down 0.4 percent while Malaysia's KL Composite Index closed lower by 0.7 percent.

India's BSE Index finished 1.1 percent lower while the 50-share NSE Index closed down 0.7 percent.