Asia Ends Mixed Over China, Fed Worries

Asian stock markets ended mixed in a choppy session on Monday after factory activity in China confirmed fears of a slowdown in the world's second-largest economy while pessimism over a withdrawal of U.S. stimulus also hurt sentiment.

Amid gainers, the Nikkei hit a new one-month high and the Shanghai Composite stabilized in late afternoon trade to close at a one-week high. Meanwhile, Australia's S&P ASX 200 index tanked 2 percent to be Asia's worst-performing index and South Korea's Kospi closed down 0.4 percent.

(Read More: The Market's Next Worry? The June Jobs Report)

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China, Fed Worries

Chinese industrial activity continued to decline in June slows amid concerns of overcapacity and weak demand, according to both an official government reading as well as HSBC's private survey.

"I think the story for China is basically that there is not any story left. Economic activity has peaked and we think that data will surprise on the downside," said Sailesh Jha, chief strategist at Arcus Capital Singapore.

Meanwhile, comments from Federal Reserve Governor Jeremy Stein on Friday suggested that the U.S central bank's upcoming September policy meeting could mark the beginning of the Fed's stimulus withdrawal.

Nikkei Up 1.3%

Japan's benchmark index reversed earlier losses to cross the 13,750 level, closing at its highest levels in a month thanks to an upbeat corporate outlook.

The Bank of Japan's "Tankan" survey showed sentiment among big firms turning positive for the first time in two years as optimism over Prime Minister Shinzo Abe's radical stimulus policies - dubbed "Abenomics" - offset concerns about recent market volatility.

(Read More: Will the Strong Tankan Send Abenomics Off Course?)

"The risk is that the economy may be doing well enough that it actually dis-incentivizes the drive for structural reform. That would certainly lead to a dampening of market sentiment," said Alistair Newton, senior political analyst at Nomura.

The upbeat data saw dollar-yen hit a new three-week high at the 99.50 handle, which boosted exporter stocks. Fiber optic maker Furukawa, contruction maker Kajima and shipper Mitsui rallied 6 percent each.

Sydney Skids 2%

Concerns over a slowdown in China hit Australian equities the worst given that the mainland is Australia's largest trading partner and much of Sydney's resource-heavy benchmark index depends on the mainland for export growth.

The Australian dollar rebounded against the greenback, trading at $0.9179 from a near three-year low of $.09105 hit earlier in this session. That weighed on banking stocks with Australia's "Big 4" lenders falling over 2 percent each while Macquarie Group lost over 3 percent.

Shares of Boart Longyear skidded 7.4 percent after slashing its 2013 earnings forecast.

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Uncertainty over the timing of Federal elections also weighed on sentiment after newly reinstated prime minister Kevin Rudd said he is considering delaying the vote until October, from the earlier September date.

Shanghai Rallies Nearly 1%

China's benchmark index managed to close at its highest levels in a week after bouncing between gains and losses throughout the session.

Mainland property shares reversed earlier losses to close higher after data showed that June housing prices grew at a slower pace in a hundred Chinese cities, compared to May. Lvjing Real Estate jumped nearly 2 percent while Poly Real Estate added 1 percent.

(Read More: Why China's Economy May Be Headed for a Crash)

In an effort to allay fears of a cash squeeze that sent money-market interest rates spiking over the last two weeks, Chinese Banking Regulatory Commission (CBRC) chief Shang Fulin said that the banking system had sufficient liquidity and pledged to control risks in the sector.

This helped banking stocks reverse earlier losses. Agricultural Bank of China and Minsheng Bank closed up 1.2 and 0.3 percent, respectively after skidding as much as 1 percent.

Kospi Down 0.4%

South Korean investors tracked Asia-wide caution on concerns over China's latest factory activity data and a paring down of U.S. stimulus.

A weaker yen weighed on exporters. Automakers Hyundai Motor and Kia Motors eased 1 percent each.

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