Asian shares flat after US debt reduction talks fail

Most Asian shares have stabilised after early falls on news that a special committee failed to agree a deal to reduce US debt levels.

Japan's main index fell 1% and Australia's slipped 1.3% when markets opened.

But by the close of trade, most Asian exchanges had shrugged off previous worries.

Japan's benchmark Nikkei index was down by just 0.40%, whilst Hong Kong's Hang Seng was 0.14% higher.

US stock indexes had lost about 2% on Monday after reports emerged that a so-called debt "super-committee" was not able to reach agreement.

Debt worries in the US, as well as the continuing problems in Europe, have been weighing on Asian markets.

The US committee, made up of Republicans and Democrats, was tasked with cutting the country's budget deficit by $1.2tn (£762bn).

US debt has now climbed above $15tn.

Ratings agencies stopped short of downgrading US debt despite the fact that a deal was not reached.

Standard and Poor's, which downgraded the US from its top AAA grade rating on 5 August, said the failure to reach an agreement did not merit another downgrade.

Spending cuts

Monday's breakdown in talks triggers $1.2tn in automatic spending cuts that will go into effect in 2013.

"Ultimately, spending cuts will come in and that will help to rein in the fiscal deficit hopefully," Thio Chin Loo of BNP Paribas told the BBC's Asia Business Report.

Loo added that the view that spending cuts would happen regardless of the committee's decision helped explain Monday's muted market reaction.

Image caption Analysts say the lack of a deal will increase volatility in Asian markets in coming days

However, analysts agree that there is also a sentiment amongst investors that politicians are too divided to deal with debt issues in the US and they will persist.

It also comes at a time when the eurozone debt crisis threatens to spillover into larger economies, causing more problems for global growth.

Yields on Spanish, French, Italian and Belgian government bonds rose after the rating agency Moody's warned that France's AAA credit rating was in jeopardy.