Most Asian markets edged downward amid fading hopes for a substantive United States interest rate cut this week and as investors pocketed gains in stocks that had rallied over the last week.
In Tokyo, the stock market fell for the first time in four sessions, with the benchmark Nikkei 225 index slipping a modest 31.98 points, or 0.20 percent, to close at 15,924.39 points.
Modest US employment data released Friday suggested to some investors that the Federal Reserve will cut US interest rates a quarter point at its policy meeting Tuesday instead of a half-point. The Labor Department reported 94,000 jobs were added to payrolls in November and that the unemployment rate held steady at 4.7 per cent, a reassuring sign for an economy that is fighting to avoid a recession.
The American economy - the world's biggest - is a vital market for Asian exporters. Many traders said a quarter-point rate cut had already been factored into stock prices.
Japanese shipping companies were notable losers as investors took profits from their recent gains. Kawasaki Kisen fell 3.3 per cent, while Mitsui OSK Lines dropped 2.6 per cent.
Oil shares also faced selling after crude oil prices fell below $88 a barrel in Asian trading Monday. Nippon Oil shed 2.5 per cent, and Showa Shell was down 2.6 per cent.
Hong Kong stocks dropped on profit-taking in mainland developers and banks after China's central bank raised banks' reserve ratios over the weekend, the latest move by authorities to curb excess bank lending.
The blue chip Hang Seng Index fell 341.37 points, or 1.18 per cent, to 28,501.10.
China's central bank raised the reserve requirement ratio by 100 basis points, effective December 25, bringing the ratio to 14.5 per cent for most commercial banks, its highest level since the mid-1980s.
Chinese banks fell on concerns that higher required reserves would slow loan growth and hurt their earnings. ICBC, China's largest bank by assets, fell 1.4 per cent, while China Construction Bank was down 2.4 per cent.
But on the Chinese mainland, shares rebounded from an early drop as metals makers and airlines advanced.
The benchmark Shanghai Composite Index gained 1.4 per cent, or 70.16 points, to 5,161.92 after falling as much as 2 per cent on news of the reserves hike.
"It looks like investors decided not to let the rate hike perturb them too much. After all, stocks are now relatively inexpensive after having fallen 17 per cent since mid-October," said Zhu Haibin, an analyst at Essence Securities.
Meanwhile, investors in Hong Kong will be closely watching Tuesday's Fed meeting out of concern for the US economic outlook and because Hong Kong interest rates tend to track US rates.
"There may be some revelations in the (Fed's) statement, such as new insights into the US subprime mortgage crisis," said Francis Lun, general manager of Fulbright Securities.
In Tokyo currencies, the dollar was trading at 111.70 yen at 1050 GMT Monday, little changed from 111.69 yen late Friday in New York. The euro fell to 1.4671 from $1.4655. (AP)