Japan's Nikkei share average closed down 0.75 percent on Friday as Nippon Steel Corp and rival steel makers dropped following China's surprise decision to raise interest rates.
Investors also dumped companies with poor earnings outlooks, with Pioneer Corp diving over 13 percent. Aggressive selling was curbed, however, thanks to firmness in US stocks and continued declines in oil prices, which soothed concerns about the damage to corporate profits and consumer spending from high energy prices.
The Nikkei average fell 81.70 points to 10,771.42 after a 1.51-percent rally the previous day. The broader TOPIX index closed down 0.44 percent at 1,085.43. "China's rate hike was surprising.
The market's initial reaction was to sell, but we can't underweight steel and shipping stocks considering the fact that China's economy is still growing," said Yoshihiko Kosuga, equities deputy general manager at Mizuho Investors Securities.
Others said that institutional investors were not willing to trade actively ahead of a weekend and until hearing what the winner of Tuesday's US presidential election will say about his foreign exchange and trade policies.
Trading was moderately active, with 1.392 billion shares changing hands on the first section, although that was down from 1.469 billion on Thursday, which was the highest total since October 14.
Decline's outnumbered gainers 917 to 522. China's central bank announced a rise in its official lending rates on Thursday in what analysts said was an attempt to guide its economy to slower growth.
Japanese steel makers and shipping firms have been among the market's main gainers this year thanks to increased demand from China and China-related businesses. Nippon Steel, Japan's biggest steel maker, tumbled 3.13 percent to 248 yen despite its upbeat earnings announced on Thursday.
This month, its shares hit 275 yen, the highest intrude level since January 2000. Nippon Yusen KK, Japan's biggest shipping firm, lost 1.66 percent to 533 yen.
Pioneer plunged 13.17 percent to 1,919 yen, the worst close since October 2002, after the audio equipment maker slashed its full-year operating profit target by 46 percent on Thursday.
Toshiba Corp dropped 1.84 percent to 427 yen. After the closing bell, the world's fifth-largest chipmaker said it swung to a half-year profit and raised its full-year forecasts. Canon Inc gained 1.16 percent to 5,230 yen after the camera and office equipment maker said on Thursday its quarterly profit rose 26.1 percent on brisk sales of copiers and digital cameras, and it nudged up its full-year outlook.
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