ster's resignation, while Hong Kong shares rose to a record on hopes for an interest rate cut by the U.S. Federal Reserve. Markets in Taiwan, China and the Philippines rose, while shares in Indonesia, Malaysia, South Korea and Australia fell.
Tokyo stocks dropped after Prime Minister Shinzo Abe said he would resign after a string of damaging scandals and a humiliating electoral defeat. The benchmark Nikkei 225 index slid 80.07 points, or 0.50 percent, to close at 15,797.60 points.
"Abe's resignation would mean that policy decisions regarding such matters as the budget deficit and the possibility of a consumption tax hike will be up in the air for a while," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Securities. "This is absolutely negative to the stock market."
Others said Abe's exit could prove positive in the longer term if it clears the air and allows the ruling Liberal Democratic Party to stabilize after a series of political missteps. Four Cabinet minister were forced to resign over the past nine months, and one -- his first agriculture minister -- committed suicide over a money scandal.
For the near-term, traders said, uncertainty is likely to weigh on Japan's financial markets, compounding ongoing concerns over the U.S. credit crisis.
"Tokyo shares will probably have to go through a double whammy of the resignation news and the U.S. subprime woes for a while," said Hiroaki Kuramochi, head of cash equities department at Bear Stearns in Tokyo.
Banks were the main losers on the day with Mizuho Financial Group losing 2.4 percent to 648,000 yen (US$5,687; euro4,114).
In Hong Kong, expectations of an interest rate cut by the U.S. Federal Reserve next week sent Hong Kong property developers sharply higher, helping propel the benchmark index to a record close. The Hang Seng Index rose 357.90 points, or 1.5 percent, to 24,310.14.
But analysts said they expect the blue-chip index to meet strong resistance to gains beyond the current level in the near term, given increasingly expensive valuations following a recent market surge.
"Property stocks may rise further on the interest rate outlook, but this will be offset by selling pressure among China-related companies," said Castor Pang, a strategist at SHK Financial.
Many in the market believe the U.S. Federal Open Market Committee will cut its 5.25 percent target rate when it convenes on Sep. 18, because of the subprime mortgage crisis.
"With all the problems the U.S. now faces, the Fed is likely to cut rates and keep them low for some time," Deutsche Bank said in a research note.
With its currency peg to the U.S. dollar, Hong Kong usually moves in tandem with the U.S. when the target rate is adjusted. Lower local rates will boost interest-sensitive sectors, particularly property.
In currencies, the U.S. dollar was trading at 114.12 yen late afternoon, down from 114.30 yen late Tuesday in New York. The euro rose to US$1.3842 from US$1.3832.
Elsewhere:
JAKARTA: Indonesian share prices ended flat as players continued to wait for the U.S. Federal Reserve Board's rate decision in its meeting next Tuesday. The JSX index closed 0.1 percent to 2,209.931.
KUALA LUMPUR: Malaysian shares ended down 0.39 points at 1,285.94 in moderate volume as investors locked in profits from an intraday high of 1,296.83.
MANILA: Philippine shares surged Wednesday after a two-day slide as investors welcomed a guilty verdict in deposed President Joseph Estrada's plunder trial. The 30-company Philippine Stock Exchange Index gained 1.2 percent, at 3,307.60, after losing 1.6 percent in the last two sessions.
SEOUL: Uncertainties over the impending triple-witching pushed the South Korean market lower Wednesday -- and news of a probe into possible price manipulation of Hyundai Merchant Marine stocks didn't help either. The Korea Composite Stock Price Index closed down 1.8 percent to 1813.52.
SHANGHAI: Chinese shares rebounded after Tuesday's steep losses, boosted by sharp gains in the gold sector and bargain hunting in blue chips. The benchmark Shanghai Composite Index, which tracks both A and B shares, ended up 1.2 percent at 5,172.63. The index plunged 4.5 percent Tuesday on growing concerns that the central bank may tighten monetary policy further to curb inflation. The Shenzhen Composite Index rose 1.5 percent to 1,421.44.
SYDNEY: Australian stocks succumbed to weakness in the Asian region, after early gains on the back of a surge on Wall Street and the London Metal Exchange. The benchmark S&P/ASX 200 index closed down or 0.2 percent at 6,220.3 on moderate volume after hitting a five-day high of 6,303.2.
WELLINGTON: New Zealand shares closed modestly lower Wednesday, as many investors stayed on the sidelines ahead of a key central bank meeting Thursday. A higher New Zealand dollar also hurt some leading stocks, said brokers. The benchmark NZX-50 index ended down 0.4 percent to 4,143 on thin volume valued at NZ$74 million.
