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Asian markets mostly fell Monday after US lawmakers failed to prevent the imposition of $85 billion in spending cuts that kicked in at the end of last week.
Chinese shares suffered the biggest sell-off with property developers hit by measures to cool the housing market, but Tokyo enjoyed modest gains as the man tapped to become Japan's top central banker vowed to tackle deflation.
Shanghai lost 3.65 percent, or 86.10 points, to end at 2,273.40, Sydney slipped 1.49 percent, or 75.6 points, to 5,010.5, and Seoul was off 0.66 percent, or 13.34 points, at 2,013.15. Hong Kong lost 1.63 percent in the afternoon.
Tokyo put on 0.40 percent, or 45.91 points, to close at 11,652.29,
US politicians traded barbs over the weekend after the "sequester" of deep federal spending cuts that kicked in on Friday, with most economists warning it will lead to rising unemployment and dent economic growth.
The White House said Sunday that as voters start to feel the pain, Republicans will pivot and seek compromise.
But the Republicans did not sound like they were in any mood to budge, with the party's Senate leader Mitch McConnell saying the American people understood it was time for belt-tightening.
There had been hope that Democrats and Republicans would be able to reach a compromise to cut the budget that would not be as painful, but last-minute talks failed Thursday.
However, despite the lack of movement in Washington, investors are confident a deal will eventually be made. Wall Street got a boost after fresh data that showed consumer spending rose in January at double the rate of December, despite lower personal income.
There was further cheer from a report that showed US manufacturing activity hit the highest level since mid-2011.
The Dow jumped 0.25 percent to within sight of its all-time high seen in October 2007, before the onset of the global financial crisis.
The broad-based S&P 500 was up 0.23 percent and the Nasdaq gained 0.30 percent.
On currency markets the dollar, which enjoyed a strong rally in New York, eased slightly to 93.45 yen in Tokyo against 93.59 yen late Friday despite a pledge from Haruhiko Kuroda, the government's nominee to lead the Bank of Japan, to do "everything possible" to conquer deflation.
Kuroda, widely expected to be confirmed by parliament as Japan's top central banker in the coming weeks, dismissed the bank's current 101 trillion yen asset-buying programme as "not enough".
He added that if he is appointed, achieving the bank's recently set two percent inflation target "at the earliest time is my most important duty".
His vow signalled the possibility of more aggressive monetary easing, and similar statements by Japanese leaders in recent weeks have sent the yen tumbling in a boost for exporters as their products become more competitive.
But Minori Uchida, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ, said: "His comments initially helped drive the yen weaker, but then investors realised he wasn't saying anything particularly new, and it led to a buyback."
The euro bought $1.3014 and 121.52 yen, compared with $1.3027 and 121.92 yen.
Chinese shares took a beating, with property plays worst hit, after Beijing on Friday announced measures to cap prices, including higher down payments and mortgage rates as well as stricter enforcement of a 20 percent capital gains tax on property transactions.
"The measures are a big blow to property stocks. The implementation of (the) capital tax on property transactions will definitely affect housing demand," Amy Lin, analyst at Capital Securities, told Dow Jones Newswires.
Oil prices were lower. New York's main contract, light sweet crude for delivery in April dropped 29 cents to $90.39 a barrel in the afternoon and Brent North Sea crude for April delivery shed 17 cents to $110.23.
Gold was at $1,578.05 at 0700 GMT compared with $1,571.29 late Friday.
In other markets:
-- Taipei fell 1.22 percent, or 97.29 points, to 7,867.34.
Taiwan Semiconductor Manufacturing Co shed 2.86 percent at Tw$102.0 while Hon Hai Precision was 1.35 percent lower at Tw$80.5.
-- Wellington fell 1.49 percent, or 64.39 points, to 4,253.60.
Telecom was off 1.9 percent at NZ$2.33 and Chorus slipped 1.38 percent to NZ$2.86.