Asian shares fell on Thursday after negative news on U.S. jobs and manufacturing pointed to a patchy recovery in the world's largest economy, and as dollar weakness sparked concerns for exporters around the region.
In Europe, futures pointed to a flat open for shares at the start of the final quarter of 2009, after posting their biggest quarterly gain for nearly 10 years in the previous three months.
The MSCI index of Asian shares excluding Japan, which rose 22 percent last quarter, slid 0.5 percent. It has retreated from a recent 13-month high despite signs across Asia that the region's manufacturing activity is gathering strength on slowimg improving demand.
Japan's Nikkei average <.N225> dropped 1.5 percent to two-month closing low with exporters such as Kyocera Corp <6971.T> hurt by yen strength and banks, and as investor sentiment was dampened by uncertainty over policies of the new government.
Many Japanese exporters have set their exchange rate assumptions for the dollar at around 90-95 yen for the fiscal year to March but the greenback hit an eight-month low at 88.23 yen this week and stood at 90.00 on Thursday, fuelling concerns about damage to overseas profits.
While the dollar rose above 90 yen the other day, it looks as if the trend for yen strength might still be in place, said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.
Among exporters, chip-tester maker Advantest <6857.T> fell 5.8 percent. Bank shares, including Mitsubishi UFJ Financial Group <8306.T>, lost ground over the financial services minister's interest in introducing a moratorium on repayment of principal on mortgages and bank loans to help small businesses. <.T>
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. <.N>
Ahead of Friday's non-farm payrolls, which are important for U.S. consumers' confidence and the strength of economic recovery, personal income, spending, home sales and manufacturing data are all due along with weekly jobless claims.
South Korean shares were led lower by tech firms and automakers such as Hyundai Motor <005380.KS> after the won hit a one-year high against the dollar and fueled concerns about exporters' competitiveness.
The stronger won has prompted worries about exporters. Investors are growing more cautious about the fourth quarter and next year's outlook, said James Song, an analyst at Daewoo Securities.
Hyundai fell more than 8 percent. The Korea Composite Stock Price Index <.KS11> shed 1.7 percent, outstripping a fall of 0.9 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 on the defensive early, 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, briefly hit a 14-month high at $1.8860, buoyed by expectations that domestic interest rates will rise faster than other developed economies.
But the greenback later got a lift against the euro, which fell after European Economic and Monetary Affairs Commissioner Joaquin Almunia said the Eurogroup would discuss the single currency's appreciation to prepare its position for the G7.
And it recovered ground against the won and Taiwan dollar after dealers said authorities had sold the Asian currencies.
The dollar index <.DXY>, a measure of its performance against six major currencies, rose 0.5 percent, lifting further above a 13-month low set last month. It has lost 5 percent since the start of the year.
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 $1,004.20 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)