Stocks hit by U.S. fiscal fears, weak yen lifts Nikkei

A man looks at a stock quotation board outside a brokerage in Tokyo November 7, 2012.

SINGAPORE (Reuters) - Asian stocks mostly fell on Thursday, taking their lead from a drop in Wall Street shares as investors reacted to the prospect of drawn-out negotiations to avert the looming U.S. "fiscal cliff" by shedding riskier assets.

The retreat from risk also weighed on commodities, with the exception of oil, which jumped in the previous session due to rising tensions in the Middle East after Israel launched an offensive against Palestinian militants in Gaza.

MSCI's broadest index of Asia Pacific shares outside Japan fell 0.5 percent. But Tokyo's Nikkei rose 0.6 percent as the lift given to exporters by a sharp fall in the yen the previous day outweighed global concerns.

"U.S. stocks fell, and there are concerns about the developing situation in Israel, so sentiment is cautious and the outlook is cloudy and unclear," said Kenichi Hirano, operating officer at Tachibana Securities in Tokyo.

U.S. stocks fell more than 1 percent on Wednesday after President Barack Obama reiterated his call for the wealthy to pay higher taxes, setting the stage for a tough budget battle with Congressional Republicans.

Investors fear that the package of tax increases and spending cuts mandated to come into force next year if a deal is not agreed - the so-called fiscal cliff - will pitch the world's biggest economy back into recession.

Currency markets were little changed in early Asian trading, with the euro steady around $1.2730 and the yen at 80.17 to the dollar.

The yen had fallen the most against the dollar in two months on Wednesday after Japanese Prime Minister Yoshihiko Noda indicated he would call a snap election for next month.

Japan's main opposition Liberal Democratic Party, which favours further monetary policy easing by the central bank, leads in opinion polls and the prospect of an early election is regarded as negative for the yen.

U.S. crude traded down a few cents around $86.25 a barrel. Benchmark Brent crude had risen more than 1 percent on Wednesday towards $110 a barrel after Israel launched airstrikes in retaliation from rocket attacks on its territory, killing the military chief of Hamas.

Gold eased 0.1 percent to around $1,724 an ounce.

(Additional reporting by Dominic Lau and Lisa Twaronite in Tokyo; Editing by Michael Perry)