Asian stock markets ended lower after cautious trading, following the mixed finish on Wall Street overnight.
Japan's Nikkei average lost 0.5 percent, with electronics heavyweight Canon hit by a brokerage downgrade and ailing Japan Airlines tumbling on a report that it was set to post a $13.3 billion net loss.
After hovering in positive territory earlier in the day, the Nikkei edged down when commodities-linked shares pared gains after China's central bank unexpectedly raised rates at a
three-month bill auction, which traders said could signal the start of monetary tightening.
That fed into concerns that the Nikkei was vulnerable to profit-taking after it notched up a 15-month closing high on Wednesday, its third day of gains.
In active trade, the benchmark index lost 49.79 points to 10,681.66. Its relative strength index (RSI) edged down but still clung around 70, signaling it remains overbought.
The broader Topix edged up 0.1 percent to 931.85.
Canon shares declined 2.5 percent to 3,930 yen, becoming a major drag on the market after Credit Suisse cut its rating on the stock to "neutral" from "outperform".
The brokerage also lowered its target price to 3,900 yen from 4,100 yen, saying it favors profit-taking in the stock for now.
JAL tumbled 9.5 percent to 76 yen. The Nikkei business daily said the struggling airline is likely to post a net loss of $13.3 billion due to a huge restructuring charge.
Commodities stocks found early favour as investor risk appetite for industrial metals grew in the wake of upbeat manufacturing and auto sales data earlier in the week but later lost steam in the afternoon on the China news.
Sumitomo Metal Mining, a leading smelter, advanced 1.5 percent to 1,467 yen, with fellow smelter Dowa Holdings gaining 1.5 percent to 543 yen.
Japan's new Finance Minister, Naoto Kan, called on Thursday for a weaker yen and said he would work with the Bank of Japan to get it to an appropriate level.
The yen slid after his comments, which were seen as unusually specific for a finance minister, despite Kan's past comments that had been seen as less hawkish on the currency than his predecessor. Kan takes over after 77-year-old Hirohisa Fujii stepped down for health reasons.
Seoul shares fell as tech exporters were dragged lower by a strong won. The Korea Composite Stock Price Index (KOSPI) finished down 1.28 percent at 1,683.45 points.
LG Electronics lost 7.63 percent on the back of the won's gains and pressured further by smart phone competition worries. Google launched a new smartphone that it will sell directly to consumers. LG Display also tumbled 5.76 percent.
Samsung Electronics lost 3.33 percent after hitting a record high in the previous session and following its fourth-quarter earnings guidance.
It said early on Thursday that it expected profit for the October-December quarter to come in higher than market forecasts, helped by strong memory chip prices and robust demand for flat-screen televisions.
Chicken and seafood processors rallied after local media reports of foot-and-mouth disease outbreaks, which South Korea's Agricultural Ministry has yet to confirm.
Halim rose 4.1 percent and Dongwon Fisheries jumped 12.15 percent. Shares in Daehan New Pharm Corporation, a manufacturer of veterinary products, spiked 10.11 percent.
Australian stocks fell 0.5 percent, dragged down by banking stocks after stronger-than-expected retail sales data raised the chance of an interest rate hike in February.
Shares were also held back by investor caution ahead of key U.S. jobs data on Friday, which is expected to set the near term trend for markets.
The benchmark S&P/ASX 200 index shed 22 points to 4,899.4, based on the latest available data, after a flat finish on Wednesday.
New Zealand's benchmark NZX 50 index was 0.4 percent higher at 3,2857.4.
Australian retail sales surged in November to record their biggest increase in eight months, lifting the chance of a fourth straight interest rate hike next month.
The data helped retail stocks but weighed on banking shares on concerns that higher interest rates would crimp credit growth.
Top lender National Australia Bank lost 0.8 percent to A$26.99 while Australia and New Zealand Banking Group, the country's No. 4 bank, fell 2.4 percent to A$22.12.
Furniture and electricals chain Harvey Norman rose 3.7 percent to A$3.95, electronics retailer JB Hi-Fi added 0.2 percent to A$21.35 and department store David Jones gained 0.8 percent to A$5.13.
Zinc miner CBH Resources surged 26.1 percent to A$0.145 after rising 4.5 percent yesterday, on expectations of a takeover bid.
Hong Kong's Hang Seng Index fell 0.7 percentafter gaining 0.5 percent initially but the market is underpinned by a rosy outlook for the domestic economy.
CNOOC rose 1.3 percent as oil counters advanced after oil prices climbed above $83 a barrel on Wednesday.
China Coal was up 1.89 percent and Yanzhou Coal rose 4.02 percent. Harsh weather in parts of China tightened coal and power supplies, while demand rose on falling temperatures.
Macau casino operators Sands China retreated 4.96 percent and Wynn Macau lost 2.14 percent on profit taking after rallying sharply in the previous session, brokers said.
Zijin Mining was up 1.09 percent. China's largest listed gold company said net profit rose more than 15 percent last year from 2008 on higher gold prices.
Other gold companies also rose as gold prices hit a three-week high on Wednesday, with Real Gold Mining up 2.89 percent.
Hong Kong Exchanges & Clearing was up 3.4 percent on expectations volume of trade on the city's bourse would rise this year, with a string of IPOs planned in coming months. Turnover rose to its highest in more than a month on Wednesday.
Aluminum Corp of China rose 2.71 percent, as investors remained upbeat after China's top aluminum company raised spot alumina prices.
China's key stock index dropped 1.9 percent, with the bank sector weak after China's central bank tightened it grip on liquidity.
The Shanghai Composite Index ended at 3,192.776 points, posting its biggest daily percentage drop in two weeks.
China's central bank surprised the market by raising the auction yield of its three-month bills for the first time since mid-August, the significant step-up in liquidity tightening.
Traders said the PBOC's move appears to be aimed at banks, warning that it would not tolerate excessive lending in the early months of 2010 like the banks did in the same period of 2009.
Concerns about rising inflation and asset bubbles in the key property sector are also among reasons for the move, they said.
China National Chemical Engineering kicked off a year of busy China IPOs with a weak debut. Its shares were most actively traded issue in Shanghai but rose only 5.9 percent to 5.75 yuan on its first day of trading, well below analysts' forecast.
Singapore's benchmark Straits Times Index declined 0.6 percent. UOB was in focus after the lender sold its life insurance unit to Prudential for $307 million.
Malaysia's KLCI hit a fresh 20-month high of 1299.27, but closed 0.1 percent lower.
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