Asia falls on Fed concerns but upbeat China PMI helps trim losses

Asian stocks tracked declines in global equity markets on Thursday on fears over a looming withdrawal of U.S. stimulus but a better-than-expected manufacturing report in the mainland helped pare earlier losses.

Japan's Nikkei index eased 0.4 percent, the Shanghai Composite dipped 0.3 percent, Australia's S&P ASX 200 moved off a two-week low and South Korea's Kospi hit a one-month low.

HSBC's preliminary reading of Chinese purchasing manager's index (PMI) for August crossed the key 50-level for the first time in four months thanks to a rebound in new orders. The upbeat data is the latest sign of stabilization in China and follows July's flash reading of 47.1, which marked an eleven-month low.

Meanwhile, minutes from the Fed's latest policy meeting failed to provide clarity on when the central bank might start reducing its stimulus program. This drove yields on the benchmark 10-year Treasury to a session high of 2.884 percent.

(Read more: Keep printing? Fed stays in game, but exit looms)

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Shanghai slips 0.3%

China's benchmark index swung between gains and losses in choppy trade but sentiment was generally positive following the better-than-expected PMI data.

"China's manufacturing growth has started to stabilize on the back of modest improvements of new business and output. This is mainly driven by the initial filtering through of recent fine-tuning measures and companies' restocking activities," said Hongbin Qu, chief economist, China & co-head of Asian Economic Research at HSBC.

Financials gave up their previous gains. Minsheng Bank closed up 0.3 percent while Industrial Bank ended flat after rallying 1 percent each. Brokerage Everbright Securities fell 2.8 percent before announcing that trading of its shares would be suspended in the afternoon.

Bank of Communications fell 0.7 percent after posting a 12 percent rise in first-half net profit.

Nikkei slips 0.4%

Japan's benchmark index pared losses after losing as much as 1.4 percent earlier in the session thanks to a weaker currency. Dollar-yen rose above the 98 handle to approach a two-week high of 98.64, hit earlier this month after China's strong data boosted regional risk appetite.

Losses in manufacturing stocks weighed on the index on worries about their exposure to emerging markets. Automakers Hino Motors extended losses by 5 percent and Mazda Motor lost 2.2 percent.

Tokyo Electric Power fell nearly 5 percent as concerns rise about a toxic water leak.

Sydney down 0.5%

Australia's benchmark index rose above 5,070 points to move off an earlier two-week low as the Australian dollar trimmed losses to briefly cross the $0.90 handle after China's manufacturing data.

Focus was on a raft of corporate earnings. Fortescue Metals rose over 4 percent after reporting a 12 percent rise in annual profit, and casino operator Echo Entertainment added 1 percent after a 7.6 percent rise in full-year revenue.

But Atlas Iron slumped over 10 percent after its underlying full-year net profit failed to match market expectations and Brambles lost 5 percent despite reporting a higher full-year profit after tax.

Kospi declines 1%

South Korea's benchmark index fell below 1,860 points to its lowest level in a month thanks to big losses in blue-chip exporters.

LG Electronics and LG Display skidded 1.8 and 1.2 percent, respectively while steelmaker POSCO shed 1 percent.

EM sell-off continues

Emerging market indexes sustained heavy losses with Philippines' stock market plunging over 6 percent as it resumed trade from a three-day closure. Meanwhile, Indonesia's Jakarta Composite fell over 2 percent.

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