Asian stocks hamstrung by U.S. spending worry

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The dollar was steady against the yen and the euro, with all eyes on a raft of U.S. economic indicators this week for further clues on the health of the world's top economy as the credit market turmoil plays out. The Aussie dollar hit a three-month high on its hefty yield advantage.

After an optimistic start, Japan's Nikkei average gave away early gains to close just 0.1 percent higher. MSCI's measure of Asian stocks outside Japan fell 0.3 percent by 6 a.m. British time.

"It seems perhaps as if the downside's firming up and the Nikkei now may slowly rise," said Takeshi Osawa, senior fund manager at Norinchukin Zenkyoren Asset Management.

But Osawa said the Nikkei could slip again in coming months if the yen advances strongly against the dollar or companies post poor full-year results.

Among the gainers in Japan were Toshiba Corp and Sony Corp, which jumped after a Toshiba source told Reuters it would concede defeat in the high-definition DVD format war, avoiding a costly marketing battle.

Steelmakers Nippon Steel Co and JFE Holdings Inc also rose after agreeing to a 65 percent price rise for iron ore, cementing a cost that could have been worse.

"The market was relieved now that one of the negative factors weighing on the shares had been played out," said Takashi Aoki, vice president at the equity investment division at Mizuho Asset Management.

But the iron ore price hike was less well-received in South Korea, where POSCO Co Ltd, the world's fourth-largest steel maker, gave up earlier gains to close down 0.2 percent.

Australian iron ore miners Fortescue Metals Group Ltd, Mount Gibson Iron, Murchison Metals Ltd jumped about 5 percent on the news, but the reaction from bigger rivals Rio Tinto and BHP Billiton was muted, falling 2.3 percent and 0.8 percent respectively.

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