The Liberal Democratic Party of Japan's electoral triumph propelled the yen to a 20-month low against the dollar that saw the Nikkei stock average <.N225> touch a 8-1/2-month high on expectations of much better export earnings.

But MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> eased 0.1 percent, after ending last week near 16-month highs which it had hit successively since December 5.

Regional bourses faced profit-taking from last week's rally as investors worried whether the U.S. could reach a compromise over its budget crisis before the end-of-year deadline.

Shanghai shares bucked the trend with a 0.8 percent jump after the official Xinhua news agency said on Sunday that China pledged to maintain steady economic policies in 2013, leaving room for maneuver in the face of global risks while deepening reforms to support long-term growth.

The Shanghai Composite Index soared 4 percent and Hong Kong shares rose to a 16-month peak on Friday.

In a likely effort to restore confidence in China's stock markets which have fallen by over 60 percent since November 2007 and have markedly lagged Asian peers in recent rallies, China's foreign exchange regulator has removed the $1 billion limit for foreign sovereign wealth funds, central banks and monetary authorities buying Chinese assets through the Qualified Institutional Investor Programme.

Global shares fell on Friday displaying investor unease over the lack of progress in the U.S. fiscal talks, amid signs of a deepening recession in the euro zone as disappointing German manufacturing sector figures and a rise in euro zone unemployment overshadowed a small pick-up in purchasing manager data.

Australian shares fell 0.2 percent in thin trade on uncertainty over the U.S. fiscal woes.

"The volumes are very tiny," Patersons Securities dealer Martin Angel of Australian stocks, adding many players were now out for the Christmas and New Year break. "There has been a lot of money sitting on the sidelines and people are just nibbling away at some quality stocks."

South Korean shares <.KS11> inched down 0.1 percent after a steep weekly rise of 1.9 percent last Friday.

U.S. House of Representatives Speaker John Boehner's offer to accept a tax rate increase for the wealthiest Americans knocks down a key Republican roadblock to a deal on the year-end "fiscal cliff," but a deal has yet to be done, despite the looming deadline.

Failure to avert some $600 billion of tax hikes and spending cuts scheduled to start in January could threaten to throw the U.S. back into recession and damage the fragile recovery taking place elsewhere, such as in No. 2 global economy, China.

CHANGE OF GUARD IN JAPAN

The LDP surged back to power in a landslide election victory on Sunday, giving Prime Minister Shinzo Abe a chance to push his radical economic strategy calling for "unlimited" monetary easing and huge public works spending to bring the country out of decades-long deflation.

The Bank of Japan meets later this week and is widely expected to take further easing steps, but hold off from drastic measures until its next meeting after Japan's new cabinet is formed sometime later this month, analysts have said.

Analysts have predicted the yen will keep its weak trend underpinning equities, while the rise in stocks was unlikely to sharply raise the benchmark 10-year Japanese government bond yield.

The 20-year JGB yield rose to an eight-month high of 1.710 percent after the election.

The dollar rose as far as 84.48 yen in early Asia, its loftiest since April 2011, from around 83.50 late in New York on Friday. The euro jumped more than 1 yen to well above 111 yen, a 7-1/2-month high, early on Monday.

"I think that the policies that Abe plans to introduce will only serve to weaken the yen even further. If there is an unwinding opportunity, it will likely be short-lived, maybe falling back to 82 or so on the USD/JPY," said Neal Gilbert, market strategist at GFT Forex.

Gilbert said the yen weakness will continue because Abe is likely to choose a BOJ governor who shares his policy ideas when current governor Masaaki Shirakawa's term ends in April.

With the change of guard in Japanese politics drawing so much attention globally, some worry of the potential implications for financial relations between Tokyo and its key ally, the United States.

"What are the potential negative effects of decisive action to weaken the yen? How this impacts Japan's relationship with the U.S. directly, and China in a different complex way, will have to be defined as it evolves," said Richard Hastings, macro strategist at Global Hunter Securities.

U.S. crude was up 0.3 percent to $86.94 a barrel and Brent was steady around $108.19.

Asian credit markets were a touch safer as equities struggled to extend gains, widening the spreads on the iTraxx Asia ex-Japan investment-grade index by 1 basis point.

(Additional reporting by Victoria Thieberger in Melbourne; Editing by Eric Meijer)