With a public holiday closing Hong Kong Friday and an unwinding yen carry trade, nothing could bring Asia's markets to settle into the green for the end of the week.

After spiking into positive territory midday, the Shanghai Composite Index fell back 7.24 points, or 0.1%, to 5.818.05, continuing the last two days' run of losses.

Shares in

China Life Insurance

(LFC) - Get Report

lost 0.5%, to 67.67 yuan in Chinese trading, while even

Aluminum Corp of China

(ACH) - Get Report

, which hit a record high this week on strengthening commodity prices, slumped 1.1%, to 50.17 yuan.

"An apt metaphor to describe the current condition of the equity markets is perhaps someone lighting some dry wood with a match, then pouring on gasoline to make sure the fire keeps burning," writes Sean Darby in a report issued to Nomura's Asian clients earlier today.

Most expect Chinese trading next week to follow a similar trend. Yesterday, strong trading in Chinese "H" shares, listed in Hong Kong, kept Asia's markets afloat as it was rumored that Beijing was considering introducing swaps, which allow mainland investors to buy the Hong Kong-listed companies. The announcement was met with skepticism by many Hong Kong investors.

Today, the regulator denied considering such moves and said such speculation was a "misunderstanding." That will be bad news for the Hang Seng, and may be troublesome for U.S. exchange-traded funds invested there, like the

iShares Hong Kong

(EWH) - Get Report


Indian shares have yet to show strength since Wednesday's 9% plunge. The BSE Sensex lost 438.41 points, or 2.4%, to 17,559.38, pulled down by financial stocks there like

Icici Bank

(IBN) - Get Report

, down 1.4% to 1024.05 rupees, and


(HDB) - Get Report

, which lost 1.6% to 1357.25 rupees.

The consensus was that while earnings this week in India have been strong, equity valuations are still overpriced. Only technology companies like


(INFY) - Get Report



TheStreet Recommends

(WIT) - Get Report

staged a comeback, both ending the day up 1% and 0.8%, at 1908 rupees and 500.55 rupees, respectively.

In Japan, the carry trade staged its biggest unwinding of the week so far, depressing exporters like


(SNE) - Get Report



(CAJ) - Get Report



, as the yen was trading up, to 114.94 vs. the dollar in Asia trading. However, a neutral improvement in industrial output left many with the feeling the Bank of Japan would put rate hikes on hold until early next year.

The Nikkei lost 291.72 points, or 1.7%, to 16,814.37 while in Tokyo the Topix slipped 26.47, or 1.6%, to 1591.28.

The Korean Kospi fared similarly, down 34.99, or 1.8%, to 1,970 in the regional slump. In financials,


(SHG) - Get Report

plunged 2.9%, to 1,700 won, while


(KB) - Get Report

slid 1.4%, to 73,000 won. Exporters fared less worse, with automobile maker


off 0.5% to 65,000 won.

In other news, the Bank of Korea raised warning signals today that Asia's central banks, in particular China, may begin to sell Treasuries in a widespread collapse, when governor Lee Seong-tae confessed that the bank has been doing just that to stabilize its own economy in recent years.

"There has been much debate lately about whether central banks such as the Bank of Korea have actually sold U.S. Treasuries or just bought fewer to achieve diversification," points out Adrian Foster, head of capital markets in Beijing. "Lee is saying they've actually sold pre-existing stock."

Nomura's Darby says that right now he is recommending Korea to investors in the region, because of the relatively low valuation of equities there and because of possible continued rate tightening in other Asian markets.

"Asian investors now appear stuck between allocating assets to the overbought Indian and Chinese markets, where valuations are also unfavorable, or to the deep cyclical economies of Korea and Taiwan," Darby writes. "We favor Korea."

Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at


. He lives in New York.