Asia stocks drop on U.S. fiscal cliff fears; Nikkei falls 1.2%

Investing.com - Asian stock markets were broadly lower during late Asian trade on Wednesday, as market players shifted their attention to negotiations among U.S. Congressional leaders to avoid a budget crisis.

During late Asian trade, Hong Kong's Hang Seng Index slumped 0.9%, Australia’s ASX/200 Index settled 0.2% lower, while Japan’s Nikkei 225 Index tumbled 1.2%.

Markets participants continued to monitor developments surrounding the looming “fiscal cliff” in the U.S., approximately USD600 billion in automatic tax hikes and spending cuts due to come into effect on January 1.

Senate Majority Leader Harry Reid spooked investors Tuesday after saying that there had been “little progress” made toward reaching a deal by the end of the year.

There are fears the U.S. economy will fall back into a recession, unless a divided Congress and the White House can work out a compromise in the five weeks left before the January 1 deadline.

In Tokyo, the Nikkei retreated from a seven-month high to hit a one-week closing low, as exporters came under pressure amid profit taking.

The Nikkei has rallied 7.5% in the past two weeks, with exporters amongst the most notable gainers, as ongoing weakness in the yen boosted the outlook for export earnings.

The yen has been weighed by speculation the country’s main opposition leader, Shinzo Abe will win the upcoming general election on December 16. Abe has recently called for more aggressive monetary stimulus from the Bank of Japan.

Automakers Toyota and Honda declined 1.5% and 2% respectively, while digital camera maker Canon lost 3%.

Meanwhile, shares in Hong Kong were pulled down by losses in mainland China, where markets fell to a four-year intraday low.

The Chinese market has been under heavy selling pressure in recent weeks, as improving economic data dampened hopes of monetary easing in the near-term.

The China banking sector were among the biggest drags on the index, with China Construction Bank shares down 1.85%, Industrial and Commercial Bank of China losing 1.5% and Bank of China falling 1%.

Elsewhere, Australia’s ASX/200 index was weighed down by losses in top miners, which fell on the back of declining metal prices.

Mining giants BHP Billiton and Rio Tinto lost 0.6% and 1.9% respectively, while gold producer Newcrest Mining shed 1.8%.

Looking ahead, European stock market futures pointed to a lower open, as risk appetite remained subdued by uncertainty over U.S. fiscal woes.

The EURO STOXX 50 futures pointed to a loss of 0.35% at the open, France’s CAC 40 futures shed 0.2%, London’s FTSE 100 futures dipped 0.25%, while Germany's DAX futures pointed to a 0.15% decline at the open.

Later in the day, the U.S. was to release official data on new home sales, as well as government data on crude oil inventories.