Asian shares rose Friday on hopes of a last-minute deal to avert the US fiscal cliff, despite warnings from a leading Democrat that an agreement is unlikely just days before a year-end deadline.
Expectations for more aggressive monetary easing by the Bank of Japan continued to weigh on the yen, which was sitting at more than two-year lows against the dollar.
In its last trading day of the year Tokyo's Nikkei climbed 0.70 percent to highs not seen since before last year's March 11 quake-tsunami disaster. The index ended 72.20 points up at 10,395.18. It rose 22.9 percent for the year.
Sydney gained 0.50 percent, or 23.3 points, to close at 4,671.3 and Seoul closed up 0.49 percent, or 9.70 points, to 1,997.05.
Hong Kong added 0.21 percent, or 46.81 points, to end at 22,666.59, while Shanghai put on 1.24 percent, or 27.35 points, to 2,233.25.
US politicians have until Tuesday to come up with a deficit-cutting budget that is less painful than the steep tax hikes and swingeing spending cuts that most economists say will tip the country into recession.
With time counting down Republicans and Democrats are blaming each other for the lack of progress on a deal, with Senate Majority Leader Harry Reid saying: "I have to be very honest, I don't know time-wise how it can happen now."
President Barack Obama cut short his Christmas holiday to Hawaii to host top congressional leaders on Friday in a last-ditch bid to find an agreement.
Dealers seemed to take heart from reports that the House of Representatives would reconvene on Sunday, raising hopes of an 11th-hour compromise.
However, SMBC Nikko Securities general manager of equities Hiroichi Nishi told Dow Jones Newswires: "The market has factored in the possibility that talks will spill over to 2013.
"It remains a focus of attention, but sooner or later it's going to be solved."
On Wall Street the Dow fell 0.14 percent, the S&P 500 slipped 0.12 percent and the Nasdaq shed 0.14 percent.
Despite the uncertainty in Washington the dollar climbed against the yen, buying 86.40 yen in early Asian trade, up from 86.09 yen in New York late Thursday, hovering around its highest level since August 2010.
The euro was at 114.39 yen and $1.3248, against 113.97 yen and $1.3235.
Investors have been selling the yen on expectations Japan's new Prime Minister Shinzo Abe will carry out his promises of more aggressive monetary easing and big government spending to lift inflation and kickstart the economy.
There was little movement on news that factory output for November was down a bigger than forecast 1.7 percent month on month and a warning from the economy ministry that "industrial production is on a downward trend".
Oil prices rose, with New York's main contract, light sweet crude for delivery in February adding 39 cents to $91.26 a barrel and Brent North Sea crude for February gaining 41 cents to $111.21 in the afternoon.
Gold was at $1,658.90 at 1035 GMT compared with $1,655.26 late Thursday.
In other markets:
-- Taipei rose 51.09 points, or 0.67 percent, to 7,699.50.
TSMC was 1.46 percent higher at Tw$97.0 while Hon Hai Precision edged down 0.11 percent to Tw$88.9.
-- Manila added 0.31 percent, or 17.84 points, to close at 5,812.73.
BDO Unibank gained 0.07 percent to 72.80 pesos while SM Investments rose 0.22 percent to 882 pesos.
-- Wellington ended 0.38 percent, or 15.46 points, higher at 4,080.90.
-- Bangkok fell 0.38 percent or 5.26 points to 1,391.93.
Siam Cement dropped 2.22 percent to 440.00 baht, while telecoms company Advanced Info Service lost 1.42 percent to 209.00 baht.
-- Jakarta ended up 34.83 points, or 0.81 percent, at 4,316.68.
Astra Agro Lestari rose 3.14 percent to 19,700 rupiah, Telekomunikasi Indonesia gained 1.12 percent to 9,050 rupiah, while Indocement Tunggal Prakarsa lost 0.88 percent to 22,450 rupiah.
-- Singapore closed up 0.25 percent, or 7.87 points to 3,191.80.
Jardine Cycle & Carriage gained 0.50 percent to Sg$48.29, while United Overseas Bank shed 0.30 percent to Sg$19.82.
-- Kuala Lumpur gained 7.17 points, or 0.43 percent, for a record closing high of 1,681.33.
Bumi Armada rose 2.6 percent to 3.90 ringgit while Sime Darby ended up 1.1 percent at 9.49. IHH Healthcare lost 0.9 percent to close at 3.38 ringgit.
-- Mumbai rose 0.63 percent or 121.04 points at 19,444.84 points.
Suzlon jumped 7.52 percent to 19.3 rupees, Reliance Industries rose 2.73 percent to 840.35 rupees and state-run oil explorer ONGC rose 2.49 percent to 265.85.