Speculation that China will take more steps to cool its economy hit sentiment in Asia Monday, with Shanghai and Hong Kong lower as risk-averse investors stayed on the sidelines.
Trade was relatively quiet ahead of meetings this week by eurozone finance ministers and the US and Japanese central banks.
Investors were also awaiting a raft of data due from the United States, including fresh industrial production, inflation and unemployment figures, for new clues on the pace of recovery in the world's largest economy.
Shares were lower on lingering concerns China will take steps to cool inflation after reporting last week that consumer prices accelerated 2.7 percent year-on-year last month.
"Concerns over tightening monetary policy in China weighed on market sentiment as investors were afraid that an economic recovery in the region will be compromised," Grand Cathay Securities analyst Mars Hsu said.
Shanghai dropped 1.21 percent, or 36.47 points, to 2,976.94 and Hong Kong fell 0.62 percent, or 130.64 points to 21,079.1.
China has recently taken steps to calm inflationary pressures by ordering banks to increase their capital reserves three times since December -- limiting the amount of money they can lend -- amid mounting fears of bad debts.
Investors shrugged off reassurance from Chinese Premier Wen Jiabao over the weekend that Beijing would "maintain" massive stimulus measures put in place in late 2008 to bolster the economy.
He also warned China would not bow to foreign pressure to boost the value of its currency.
However, "just because a rate hike didn't happen over the weekend doesn't mean it's off the able", Ci Weixiang from Guotai Junan Securities told Dow Jones Newswires.
"The uncertainty about its timing is going to pressure sentiment in the coming weeks."
Steel firms led the falls in Shanghai on news that more than ten major domestic steel mills had appealed to Beijing to intervene in tough pricing talks with global iron ore miners.
Baoshan Iron and Steel fell 2.6 percent, while Hebei Iron and Steel declined 3.0 percent.
Sydney dropped 0.71 percent or 34 points to end at 4,784.1 in thin trade as investors looked to leads from the US later in the week, analysts said.
Tokyo closed practically unchanged, edging 0.72 points higher to 10,751.98 with players reluctant to buy after strong gains last week and before the Bank of Japan (BoJ) policy meeting on Tuesday and Wednesday.
Policymakers are widely expected to discuss further monetary easing to fight deflation, with falling consumer prices still burdening the fragile economy.
Exporters gained on a weaker yen, with Canon up 2.96 percent and Toyota edging 0.86 percent higher.
The dollar rose ahead of this week's policy meetings, while the euro benefited from speculation that Europe is mustering support for ailing eurozone member Greece.
The greenback rose to 90.60 yen from 90.52 yen in New York, while the euro was changing hands at 1.3740 dollars in Tokyo afternoon trade, down from 1.3761 dollars in New York late Friday. The European unit fell to 124.47 yen from 124.76 yen.
Investors also eyed the Federal Reserve's policy-setting Federal Open Market Committee (FOMC), which will meet on Tuesday, for further indications of the strength of recovery in the United States.
The Fed's decision last month to hike the interest rate it charges banks for emergency loans stunned markets, but many investors believe there will be no policy change at the upcoming meeting, analysts said.
Oil was lower. New York's main contract, light sweet crude for April delivery, shed 42 cents to 80.82 dollars a barrel while Brent North Sea crude for April was down 49 cents to 78.97 dollars a barrel.
Hong Kong gold closed lower at 1,104.00-1,105.00 US dollars an ounce, down from Friday's close of 1,112.00-1,113.00.
Copyright 2010  AFP Asian Edition
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