Asian stocks struggled and the dollar wavered on Friday as U.S. lawmakers squabbled over a compromise to avoid an unprecedented debt default, while growing worries about Europe's debt crisis weighed on the euro, adding to investor wariness.

With just a few days to go before U.S. lawmakers must lift the country's $14.3 trillion borrowing ceiling by an Aug. 2 deadline or risk a default and possible downgrade of its prized AAA credit rating, investors lost appetite for risky assets before the weekend.

U.S. shares fell for a fourth day on Thursday, bringing losses for the week so far to more than 3 percent. Even commodity currencies like the Australian dollar which have been somewhat of a investor favorite in this volatile period fell back from a 29-year high hit earlier this week.

A Republican plan to cut the U.S. budget deficit stumbled toward a vote in Congress on Thursday but even if passed it appears doomed in the Senate, pointing to more frantic talks over the weekend to permit a vote on raising the debt ceiling.

The MSCI index of Asia Pacific stocks outside Japan was down 0.2 percent, with materials and consumer shares the biggest drags, and looked set for a drop of just 1 percent on the week despite the turmoil in Washington.

Japanese shares dipped 0.1 percent before earnings from its top three banks; Mitsubishi UFJ Financial Group , Mizuho Financial Group and Sumitomo Mitsui Financial Group .

In currency markets, even as the greenback slipped against a trade-weighted basket of currencies, investors took aim at the euro as they became increasingly doubtful that last week's second bailout for Greece will keep the crisis from spreading to Italy and Spain.

Italy sold 10-year bonds at the highest yields in 11 years on Thursday and data showed euro zone economic sentiment worsened more than expected in June.

The euro fell broadly as a result and struggled to find a firm footing early in Asia. Against the dollar, it hit a one-week low around $1.4251 and was last at $1.4309.

Despite worries about a looming U.S. default, Treasuries benefited from the spike in worries about euro zone assets, with yields on ten-year notes stabilising at 2.96 percent, below this week's high of around 3 percent.

Gold consolidated gains after rising by about 10 percent this month to a record near $1,630 per ounce on Wednesday.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust , said its holdings rose 1.5 percent to 1262.98 tonnes by July 28, from 1244.80 tonnes on July 27.

U.S. crude oil futures CLc1 eased 21 cents to $97.21 a barrel, while Brent crude futures LCOc1 were little changed around $117.50.