U.S. stock index futures plunged Thursday after Speaker John Boehner failed to get his “Plan B” tax bill designed to help avert the "fiscal cliff" through the House.
Boehner’s own Republican caucus refused to support any tax increases, and he was forced to call off the vote
Asian shares also slid Friday on the news from Washington.
"Markets disliked signs of further delay in talks, with the risk that a deal may not be reached by the end of the year deadline," Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo, told Reuters. "It clearly hit risk sentiment."
Risk assets were sold off, from shares, oil to currencies such as the Australian dollar and the euro, while the yen firmed slightly, though it was pinned near multi-month lows versus the dollar and the euro.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 percent, after having traded up 0.2 percent at the open, before the House debacle, Reuters reported.
U.S. 10-year Treasuries rose in Asia on Friday, with yields moving away from an 8-week high hit this week, after Boehner conceded that his tax bill lacked the votes to pass.
Australian shares slipped to a 0.1 percent drop from a 0.4 percent gain earlier and the Japanese Nikkei erased nearly all its gains as the yen strengthened. .T
The dollar was down 0.2 percent to 84.20 yen, easing from around 84.40 earlier, but still near a 20-month high of 84.62 yen hit on Wednesday.
The euro slumped 0.6 percent to 111.11 yen from around 111.78 yen earlier, but also near a 16-month high of 112.59 yen reached on Wednesday.
The yen was kept under pressure after the Bank of Japan further eased monetary policy as expected on Thursday, with investors anticipating that the central bank will be persuaded to pursue more drastic measures next year. The incoming prime minister, Shinzo Abe, has called for bolder action by the central bank to help bring Japan out of decades-long deflation.