LONDON (CNNfn) - Queasiness over interest rates knocked Tokyo stocks lower Tuesday, though optimism for stepped-up equity buying as several new investment trusts prepare to launch helped limit losses. Hong Kong ended higher, paring the previous day's drop. Markets in Australia, South Korea, and Malaysia all lost ground, with Jakarta tumbling 3 percent on jitters over a mounting political crisis.
Japan's benchmark Nikkei Average of 225 leading shares ended down 116.32 points, or 0.6 percent, at 19,423.38. The index earlier fell as much as 1.4 percent as traders braced for the prospect of an aggressive inflation-fighting rate hike at the conclusion of Federal Reserve policy makers' two-day meeting, which begins Tuesday.
On Wall Street Monday, the Dow Jones industrial average surged 201.66 points, or 1.9 percent, to 10,940.53 after shedding more than 512 points last week. The broader S&P 500 index added 2.5 percent to 1,394.46, while the tech-laced Nasdaq composite index rose 1.4 percent to 3,940.35, although it earlier slipped as low as 3,811.85.
In Tokyo, expectations that new investment trusts - including Nomura Asset Management's Project Big-N fund due to launch Wednesday - will stimulate demand for shares supported the Nikkei.
Consumer electronics giant Sony Corp. edged up 0.6 percent to close at 27,130 yen as the company announced plans to begin selling its products directly to consumers, possibly signaling a major shift for the industry's traditional distribution system. Internet investor Softbank Corp. advanced just under 1 percent to 106,000 yen, while Fujitsu gave up 2 percent to 3,890 yen. Both Sony and Softbank are expected to feature in the portfolios of the new investment funds.
Large-capitalization steel makers and heavy manufacturers also benefited from hopes of extra demand for equities when the investment funds launch. Nippon Steel Corp. finished 1.2 percent higher at 258 yen, while Mitsubishi Heavy Industries added 1.5 percent to 348 yen.
Bill Belchere, chief economist at Merrill Lynch Asia, told CNN he believes the recent bumpy ride in Tokyo is only short-term, pointing out that Japan's economy is expected to expand by 2 percent this year.
In currency markets, the dollar was little changed against the Japanese yen at 107.31 yen, from 107.36 yen late Monday in New York.
The key Hang Seng index in Hong Kong closed up 121.52 points, or 0.8 percent, at 15,653.86 on thin trading volume as investors refrained from making big bets ahead of the U.S. interest-rate decision. The index touched an session high of 15,764.40. Strong U.S. economic growth data released Friday did little to allay fears that the Fed might opt for an aggressive increase. Hong Kong markets will shut on February 4 and 7 for the Chinese New year holiday.
China Telecom bounced 1.7 percent following a plunge of nearly 8 percent Monday. Cheung Wah Development Co. leapt 18 percent to HK$9.15, continuing a strong run that began on Jan. 27, about a week after Japan's Softbank acquired control of the company.
Banking heavyweight HSBC Holdings added 0.3 percent to HK$92.00, while property conglomerate Hutchison Whampoa climbed 2.2 percent to HK$114.50, after falling 4.7 percent Monday.
In Seoul, the leading Kospi index lost 1.6 percent as overseas and international investors sold large-cap stocks. Separately, South Korea posted a trade deficit of $400 million in January, versus a $629 million surplus a year earlier, according to preliminary figures released Tuesday. The number marked the country's first monthly trade shortfall since October 1997. South Korean officials attributed the deficit to seasonal factors and strong imports. They were careful, however, not to interpret it as a reversal of the recent upward trend.
The All Ordinaries Index in Sydney ended down 0.4 percent at 3,084.5 as investors focused on the domestic and overseas interest-rate picture. Local traders told Reuters they expect to see a relief rally Wednesday if the Bank of Australia limits its expected interest-rate rise to a quarter percentage point. Rate-sensitive stocks, such as banks, took the worst hit Tuesday.
Rupert Murdoch's News Corp. forged ahead. In London Monday, BSkyB, a satellite broadcaster 40 percent owned by the Australian company, rose on hopes for a deal with French communications and media conglomerate Vivendi. News Corp. also continued to gain after Merrill Lynch raised its 12-month forecast last week.
In Singapore, the Straits Times index ended virtually unchanged at 2,230.39, reversing a brief early spike, as many investors stayed on the sidelines ahead of the U.S. rate verdict.
Michael Heffernan, an Asia-based analyst at Docksons, said traders were generally expecting interest-rate rises of a quarter percentage-point both in Australia and the U.S. But he told Reuters traders wanted to see the actual decision before making investment decisions.
"Once we get a handle on this (monetary policy) we will do alright because there is plenty of cash around," Heffernan said.
Financial shares led a mild rally in Taiwan, where the weighted index advanced more than 1 percent to close at 9,856.39.
Jakarta stocks lost more than 3 percent as the specter of political instability loomed following comments by the country's president that he might dismiss a powerful general from the cabinet. The remarks drew a retort from Indonesia's military commander, General Wiranto, that he won't "act on" assumptions over the president's apparent call for him to step down. A weak rupiah was also said to be dissuading buyers.
Manila shares ended nearly 1 percent lower, erasing gains from Monday's session, while Thai stocks slipped. 
--from staff and wire reports
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