Asian stocks were mixed Thursday on nervousness about the progress of talks aimed at averting a US debt default despite President Barack Obama backing a cross-party plan.
However, markets were given some support as the outlook in the eurozone brightened after France and Germany came to an agreement on an aid strategy for indebted Greece.
Tokyo ended flat, edging up 4.49 points to 10,010.39, Seoul closed 0.46 percent, or 9.91 points, lower at 2,145.04 and Sydney added 0.14 percent, or 6.3 points, to 4,556.0.
Hong Kong closed flat, edging down 16.40 points to 21,987.29.
Shanghai lost 1.01 percent, or 28.31 points, to 2,765.89 after preliminary figures from HSBC showed manufacturing in China had declined in July for the first time in a year.
Obama met separately Wednesday with Democrats and Republicans to reach a deficit-cutting deal that would allow the nation's debt limit to be raised before an August 2 deadline.
But the talks ended without news of a breakthrough, leading to concerns that a tentative deal brokered by the bipartisan group of six senators could not be built on to pass through both houses of congress.
Global markets jumped after the president on Tuesday threw his weight behind the plan, which would help the nation avoid what he described as "Armageddon".
As the cut-off date approaches the White House has said it is open to a short-term deal to raise the debt ceiling but only to buy time as part of a broader arrangement to slash the ballooning deficit.
Obama has in the past rejected short-term measures, insisting on raising the $14.3 trillion US debt limit by enough to avoid another politically painful vote before his November 2012 re-election bid.
Adding to the downbeat mood was HSBC's preliminary purchasing managers index, or PMI, for China, which fell to 48.9 in July from a final reading of 50.1 in June.
The figure represents the first contraction since July 2010 and is the lowest since March 2009.
A reading above 50 indicates the sector is expanding, while a reading below 50 indicates contraction. The bank will publish its final figures on August 1.
HSBC said it expected a contraction, which comes after five interest rate hikes since October, which Beijing introduced as it tries to tame inflation, which hit a three-year-high 6.4 percent in June.
A slowdown in activity in China is considered bad for other economies as many nations rely on the Asian giant to help propel their own growth.
However, there was some cheer for investors after news from Europe that an agreement had been reached between German Chancellor Angela Merkel and French President Nicolas Sarkozy over a new Greek bailout.
The deal would be the basis for discussions at a eurozone summit that will take place later Thursday, according to a French delegation source.
The pair had aimed to find a position that would be given the go-ahead by the European Central Bank to save Athens from defaulting and contain the debt crisis that has threatened to spread to Italy and Spain.
However, the lack of detail in the Franco-German plan did provide some with cause for concern.
"The market is now waiting to see what the expected Greek aid package looks like," said Dai Sato, dealer at Mizuho Corporate Bank.
The announcement boosted the euro, which hit $1.4272 in Tokyo afternoon trade from $1.4212 in New York late Wednesday. The single currency is up more than a cent from Wednesday Asian trade.
The European single currency also jumped to 112.47 yen from 111.88 yen.
The dollar edged up to 78.79 yen from 78.77 yen.
Tech shares were mixed after US chip giant Intel said second-quarter profits were slightly better than expected but warned that PC sales for the full year would be lower than previously forecast.
On oil markets, New York's main contract, West Texas Intermediate (WTI) for September delivery, rose three cents to $98.43 a barrel and Brent North Sea crude for delivery in September was down 36 cents to $117.79.
Gold closed at $1,596.50-$1,597.50 an ounce in Hong Kong, up from Wednesday's finish of $1,591.00-$1,592.00.
In other markets:
Singapore rose 0.38 percent, or 11.98 points, to 3,138.51.
Singapore Airlines edged up 0.07 percent to Sg$14.63 and DBS Group Holdings was 0.13 percent higher at Sg$14.98.
Taipei ended 0.13 percent, or 10.97 points, higher at 8,717.14.
Leading smartphone maker HTC rose 5.5 percent to Tw$920.0 while Taiwan Cement was 2.32 percent higher at Tw$46.3.
Manila fell 0.16 percent, or 7.03 points, to 4,480.01.
The loss follows a six-day rally that sent the index to a record high.
SM Investments was flat at 539 pesos, Vista Land rose 6.0 percent to 3.35 pesos and Philex Mining fell 5.0 percent to 26.65 pesos.
Wellington closed 0.38 percent, or 12.97 points, higher at 3,421.34.
Telecom rose 1.8 percent to NZ$2.60, Fletcher Building was up 0.5 percent at NZ$8.16 and Air New Zealand gained 0.9 percent to close at NZ$1.19.
Kuala Lumpur rose 0.21 percent, or 3.22 points, to close at 1,565.81.
Budget carrier AirAsia added 4.9 percent to 3.67 ringgit, while finance firm RHB Capital gained 2 percent to 9.18. Utility company Tenaga Nasional lost 1.1 percent to 6.52 ringgit.
Jakarta rose 0.43 percent, or 17.44 points, to 4,068.07.
Bangkok added 0.25 percent, or 2.78 points, to close at 1,104.15.
Coal producer Banpu dropped 10.00 baht to 730.00 baht, while energy giant PTT Plc rose 3.00 baht to 349.00.
Indian shares slid 0.36 percent. The benchmark 30-share Sensex index closed down 66.19 points to 18,436.19.
Reliance Communications fell 4.24 percent, or four rupees, to 90.45 after media reports said the Income Tax department would be allowed to quiz some company officials next week in relation to a 2G telecom scam.
India's largest private aluminium producer Hindalco fell 1.14 percent, or 2.05 rupees, to 177.3.