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November 08 2012, 9:20PM

Fears the US economy is facing another huge economic crisis spurred a sell-off in Asian markets as Barack Obama's re-election raised the spectre of another bitter stand-off in Washington.

Investors fear a deeply divided US congress will not be able to reach an agreement to avoid a so-called fiscal cliff at the end of the year that many say will send the United States back into recession.

Eyes are also on Beijing, where the Communist Party has kicked off its 18th congress, which will see the beginning of a once-in-a-decade leadership change.

Tokyo on Thursday tumbled 1.51 per cent, or 135.74 points, to 8,837.15, Sydney fell 0.72 per cent, or 32.7 points, to close at 4,483.8 and Seoul lost 1.33 per cent, shedding 25.83 points to 1,911.09.

Hong Kong skidded 2.41 per cent, or 532.94 points, to 21,566.91 and Shanghai fell 1.63 per cent, or 34.22 points, to 2,071.51.

The initial upbeat reaction on Wednesday to Obama's victory over Republican Mitt Romney was replaced on Thursday with trepidation as the focus turned to the fiscal cliff, a combination of deep spending cuts and huge tax hikes to take effect on January 1.

The package is a major threat to the economy after a protracted but possibly reckless compromise was agreed last year between Democrats and Republicans in order to raise the country's borrowing cap.

If it kicks in, the United States' slow recovery from the financial crisis could be reversed and the economy tip back into recession, which would in turn deal a major blow to the global economy.

And with Democrats holding the Senate while the Republicans hold the House of Representatives analysts say a compromise could be as tough to find as last August, when the row over the spending limit saw the country lose its AAA sovereign debt rating.

"Immediately after the re-election parties ended, markets returned to the daunting issue of the US 'fiscal cliff'," Nicholas Smith, Japan strategist for CLSA in Tokyo, told Dow Jones Newswires.

Wall Street, which had favoured a pro-business Romney win, tumbled on Obama's victory.

The Dow dived 2.36 per cent, the Nasdaq shed 2.48 per cent and the S&P 500 lost 2.37 per cent.

Currency markets also reacted negatively. The dollar fell to Y79.90 in early European trade, from Y79.96 in New York late on Wednesday, as investors moved to the safe Japanese unit owing to economic uncertainty.

And the euro was also down. The single currency, which rose against the dollar on Wednesday on expectations of continued loose US monetary policy under Obama, fetched $US1.2760, compared with $US1.2767 in New York. It had reached $US1.2860 on Wednesday in Asia.

The European currency also fell to Y102.00, compared with Y102.09.

Market sentiment was also pressured after the European Union slashed its eurozone economic forecast and European Central Bank chief Mario Draghi warned that the eurozone's woes were beginning to hurt Germany, the bloc's powerhouse.

However, Greek MPs did manage to pass a crucial austerity package that opens the way for it to qualify for a fresh batch of bailout cash.

In China, the week-long congress is expected to see the anointment of the country's next leaders, with the focus on the composition of the Communist Party's top governing body for signs of future policy direction.

In a speech to open the event, President Hu Jintao called for the country's future leadership to "speed up the creation of a new growth model and ensure that development is based on improved quality and performance".

Oil prices rose, with New York's main contract, light sweet crude for delivery in December, adding 61 US cents to $US85.05 a barrel in the afternoon and Brent North Sea crude for December gaining 51 US cents to $US107.33.

Gold was at $US1,719.30 by 2000 AEDT, compared with $US1,729.40 on Wednesday.

In other markets:

- Singapore slid 1.02 per cent, or 31.02 points to 3,012.25.

City Developments sank 1.61 per cent to $Sg11.64 and Jardine Cycle and Carriage fell 0.71 per cent to $Sg47.36.

- Taipei fell 0.61 per cent, or 44.55 points, to 7,242.63.

Taiwan Semiconductor Manufacturing Co was 0.55 per cent lower at $Tw90.5 while leading smartphone maker HTC added 1.44 per cent to $Tw211.5.

- Manila rose 0.17 per cent, or 9.42 points, to 5,446.71.

- Wellington added 0.31 per cent, or 12.15 points, to 3,955.25.

Fletcher Building was up 1.24 per cent at $NZ7.34 and Contact Energy rose 1.52 per cent to $NZ5.36 while Telecom was steady at $NZ2.38.

By Danny McCord