Asian stocks were mixed while the dollar hit new lows on Wednesday but the deadlocked talks aimed at averting a debt default in the United States continued to weigh on sentiment.
Despite expectations that a deficit-cutting deal will be made between the White House, Democrats and Republicans, lawmakers have yet to agree a plan with the date on which the government runs out of credit fast approaching.
Tokyo slipped 0.50 percent, or 50.53 points, to 10,047.19 as yen hit new four-week highs, which cancelled out gains from another set of strong earnings reports. Sydney fell 0.78 percent, or 35.9 points, to 4,537.4.
But Seoul closed 0.26 percent, or 5.61 points, higher at 2,174.31, while Hong Kong gained 0.21 percent in the afternoon and Shanghai was up 0.21 percent.
The losses follow falls on Wall Street, where the Dow dropped 0.73 percent, the S&P 500 shed 0.41 percent and the Nasdaq was 0.10 percent lower.
Politicians from both sides clashed Tuesday but were unable to break an impasse that could see the world's richest nation unable to repay its debts, which could have a potentially devastating effect on the global economy.
President Barack Obama has described such a scenario as economic "Armageddon".
Top Senate Democrats and Republicans have called for a compromise even as Republican House Speaker John Boehner struggled to get his party fully behind a plan to raise the $14.3 trillion US debt limit.
But analysts said most dealers see the face-off as political posturing ahead of next year's presidential election and expect the debt ceiling to be raised in time to avoid a default.
"While markets have drifted lower, people do think that sanity will prevail in regard to the US debt ceiling," said Justin Gallagher, RBS head of domestic sales trading in Australia.
"That said, there seems to be more concern each day that the US could do something completely stupid," he told Dow Jones Newswires.
However, even if a default is averted, investors are concerned that the standoff may lead to a downgrade of the United States' top-notch credit rating for the first time in history.
The row has dented the dollar, which tumbled against the yen and euro.
The European single unit briefly topped $1.4530 to hit its highest level since early July before easing slightly to $1.4517 in Tokyo late morning trade.
The euro was changing hands at $1.4516 late Tuesday in New York where the single European currency had gained nearly one percent against the greenback.
The dollar fell to a four-month low 77.79 yen in Tokyo, compared with 77.94 yen in New York. The euro traded at 112.91 yen against 113.00 in New York.
And the Australian dollar jumped to a record high above 110.62 US cents after data showed inflation in Australia hit 0.9 percent in the June quarter and 3.6 percent over the year. It later eased to 110.48 US cents.
Those figures compared with expectations of 0.8 percent over the quarter and 3.5 percent over the year.
Against the Singapore dollar, the greenback hit an all-time low of Sg$1.1992 before standing at Sg$1.2001 in the afternoon, against Sg$1.2044 on Tuesday.
On oil markets New York's main contract, light sweet crude for September delivery fell 14 cents to $99.45 a barrel and Brent North Sea crude for September delivery rose 17 cents to $118.45.
Gold opened in Hong Kong at $1,622.40-$1,623.40 an ounce, up from Tuesday's finish of $1,611.00-$1,612.00.
In other markets:
Taipei closed 0.26 percent, or 23.25 points, higher at 8,817.49.
China Steel was 1.52 percent higher at Tw$30.1 while Formosa Plastics fell 3.15 percent to Tw$107.5 after a blaze at an oil refinery.
Manila ended 0.38 percent, or 17.02 points, higher at 4,482.89.
SM Investments fell 0.4 percent to 536 pesos and property developer Megaworld closed up 4.2 percent at 2.23 pesos.
Wellington dipped 0.12 percent, or 4.27 points, to 3,412.35.
NZ Oil & Gas fell 4.3 percent to NZ$0.67 and Fisher & Paykel Healthcare dropped 2.0 percent to NZ$2.50.