Asia close: Stocks fall back across region after U.S. debt downgrade

Stocks across the Pacific basin were sideswiped on Wednesday after ratings agency Fitch cut its rating on U.S. government debt to AA+.

The move had already been telegraphed by Fitch in May which blamed the downgrade on the debt ceiling standoff in Washington and the deterioration in governance.

"While debt downgrades seldom, if ever, have long legs, investors may pause and let the dust settle before reentering risk markets," said Stephen Innes, Managing Partner at SPI Asset Management.

"However, within this super market-friendly environment of stable growth and a Fed close to the end of its hiking cycle creating fertile ground for stock gains, its unlikely risk sentiment will wander too far off the soft landing path."

Japan's Nikkei fell 2.3% to 32,707.69 and Hong Kong's Hang Seng by 2.47% to 19,517.38.

Other regional stock market indices were also caught in the downdraft with the South Korean Kospi shedding 1.9% to 2,616.47.

Taiwan's Taiex dropped 1.85% to 16,893.73 alongside.

The Shanghai Stock Exchange's Composite Index outperformed, although it too retreated, by 0.89% to 3,261.69.

Reports that the country's State Council was calling on local governments to ramp up support may have helped steady investor sentiment in China.

In the currency space, the U.S. dollar slipped 0.49% versus the Japanese yen to 142.64, while against the yuan it was edging up by 0.03% to 7.1802.

The yield on the benchmark 10-year Japanese government bond ticked up by three basis points to 0.628%, having reached an intra-day high of 0.632%.

Stocks in Laos managed to dodge the wave of risk aversion, as did those in Pakistan, Philippines, Sri Lanka and Vietnam.