Japan's Nikkei average fell to a near five-week closing low on Wednesday as soft U.S. manufacturing data and construction spending added to concerns about a global economic slowdown.
Bearish bets on China-related stocks also helped pull the market lower as some investors were factoring in an abrupt slowdown in the Chinese economy. Concerns over China's sluggish growth have hit commodities, with iron ore <.IO62-CNI=SI> falling to its lowest level since October 2009.
"Investors in the Japanese market are primarily worried about China right now, although the U.S. made investors more keen to watch what happens with the jobs data out on Friday," said Masashi Oda, equity chief investment officer at Sumitomo Mitsui Investment Trust.
The Nikkei <.N225> shed 1.1 percent to 8,679.82, falling for the fifth straight session to log its longest losing run since early July, but holding just above 8,670, the 61.8 percent retracement of its rally from July 25 to August 20.
Shoichiro Yamauchi, technical analyst at Nomura Securities, said the next major support for the Nikkei was at 8,600, with the index testing that level in the near-term before rebounding.
The Nikkei China 50 <.NCHN> index, made up of Japanese companies with significant exposure to China, lost 1.8 percent.
Steelmakers <.ISTEL.T> dropped 2.1 percent and the mining sector lost 2.2 percent, while shippers <.ISHIP.T> sagged 4.1 percent, with Mitsui O.S.K. Lines <9104.T> down 4.6 percent after Moody's Investors Service said it may downgrade its credit rating.
Construction machinery makers Komatsu Ltd <6301.T> sagged 3.5 percent and Hitachi Construction Machinery Co Ltd <6305.T> shed 3.2 percent after U.S. construction spending in July fell by the most in a year.
The two companies had dropped in 11 out of the past 13 sessions on concerns that mining companies may further reduce their capital expenditure as demand in China slows.
FED TO THE RESCUE?
Concerns about sputtering growth in the world's largest economy were further reinforced after U.S. manufacturing activity contracted for a third straight month in August.
Recent soft data has fuelled expectations of further stimulus from the U.S. Federal Reserve, however. Some market participants hope the U.S. central bank will announce at its meeting next week a new round of bond-buying programme, known as quantitative easing.
"For those in the market that are pricing in QE3, hopefully the jobs data is not too good to take it off the Fed's table," said Stefan Worrall, director of equity cash sales at Credit Suisse in Tokyo.
"But the key message for me is that the data in the U.S. is better in parts ... as far as autos and housing are concerned, the recession is over."
U.S. auto sales posted their best August since before the 2007-09 recession as consumers with ageing vehicles showed more confidence in buying big-ticket items on easier credit terms.
The news was not enough to shield Japanese automakers from Wednesday's sell-off, with Toyota Motor Corp <7203.T> down 1 percent and Honda Motor Co <7267.T> off 0.9 percent.
The broader Topix <.TOPX> shed 1.2 percent to 718.09, with 1.46 billion shares changing hands, slightly below Tuesday's 1.47 billion, but up from last week's average of 1.41 billion.
Chubu Electric Power Co Inc <9502.T> advanced 2.4 percent after it announced a dividend forecast of 50 yen per share for the financial year ending March 2013, surprising the market.
Power companies have come under pressure with most of the nuclear power plants in Japan offline in the aftermath of Japan's Fukushima nuclear disaster last year.
Index heavyweight Fast Retailing Co Ltd <9983.T> slipped 1 percent after its Uniqlo stores reported a 2 percent increase in August domestic same-store sales - below market expectations.
Other losers included TDK Corp <6762.T>, which sank 5.1 percent after Barclays Securities downgraded its rating on the firm to 'equal weight' from 'overweight'.
(Additional reporting by Sophie Knight; Editing by Joseph Radford)