Asian shares fell on Thursday after a surprise drop in manufacturing in the U.S. heartland cast doubts on the strength of a global recovery, while the dollar was on the back foot against higher-yielding currencies.
The MSCI index of Asian shares excluding Japan slid 0.14 percent, backing further off a recent 13-month high despite more evidence that the region's manufacturing activity continues to gather strength.
Japan's Nikkei average <.N225> dropped 1.4 percent with exporters such as electronics parts maker Kyocera Corp <6971.T> sagging 2.6 percent on concerns that the yen's recent strength may eat into their overseas profits. <.T>
Many Japanese exporters have set their exchange rate assumptions for the dollar at around 90-95 yen for the current fiscal year to March but the greenback hit an eight-month low at 88.23 yen this week and was holding at 89.80 on Thursday.
The dollar's exchange rate is still below 90 yen, so market players are still wary about that, said Toshiyuki Kanayama, a market analyst at Monex Inc.
Among other exporters, chip-tester maker Advantest <6857.T> fell 5 percent while Honda Motor <7267.T> lost 2.5 percent.
An unexpected contraction in factory activity in the U.S. Midwest and larger private-sector layoffs than had been forecast sounded a dour note for the end of the third quarter, sending shares on Wall Street lower on Wednesday. <.
The Dow Jones industrial average <.DJI> fell 0.31 percent, the Standard & Poor's 500 Index <.SPX> slid 0.33 percent and the Nasdaq Composite Index <.IXIC> eased 0.08 percent, although they all gained about 15 percent over the quarter.
South Korean shares were led lower by automakers such as Hyundai Motor <005380.KS> ahead of September sales data, while shipbuilders retreated amid deepening words that more orders may be canceled as world trade remains weak. Hyundai slumped more than 7 percent.
Ongoing foreign and institutional selling, accelerated further by weak U.S. (manufacturing) data, are pressuring markets, said Lee Sun-yeop, a market analyst at Shinhan Investment Corporation.
The Korea Composite Stock Price Index <.KS11> shed 1.9 percent, outstripping a fall of 0.2 percent in Australian stocks <.AXJO>, where miners such as BHP Billiton Ltd
Markets in Shanghai and Hong Kong were shut for China's National Day holidays.
The dollar was again on the defensive, having fallen in the previous session as investors shifted funds out of the greenback and chased growth-linked currencies.
The Australian dollar, seen as a proxy for global growth in the currency market, hit a 14-month high above $1.8850, buoyed by expectations that domestic interest rates will rise faster than other developed economies.
The dollar index <.DXY>, a measure of its performance against six major currencies, fell on Wednesday and stood at 76.700 on Thursday, not far above a 13-month low set last month.
U.S. crude futures fell below $70 a barrel, after a jump of more than 5 percent the previous day on a drop in U.S. gasoline inventories that hinted at rising demand in the world's top oil consumer.
Gold steadied after the weaker dollar helped push the precious metal above $1,000 an ounce the previous day. Spot gold was at $1,006.30 an ounce, little changed from late U.S. levels.
(Additional reporting by Masayuki Kitano and Rika Otsuka on Tokyo, Jungyoun Park in Seoul and Denny Thomas in Sydney)
(Editing by Kim Coghill)