Japan's Nikkei average hit a two-week closing low on Friday as concerns about falling revenues for Japanese companies in China outweighed optimism over Spain's new economic reform plans and a tough budget focused on spending cuts.

A territorial spat between Asia's two biggest economies has led to rising anti-Japanese sentiment in China, which has forced some Japanese firms to halt production there, adding to concern of a sharp slowdown in China.

Data showed on Friday that sagging sales in China, Japan's biggest export market, and the confidence-sapping euro zone crisis hurt Japan's August industrial output, which fell to a 15-month low and fuelled concerns that the country could slip into recession later this year.

The Nikkei ended down 0.9 percent at 8,870.16, with losses widening in the afternoon as traders said stop-loss selling had been triggered after Nikkei futures broke below 8,900.

The Nikkei China 50 index, made up of Japanese firms with heavy exposure to the world's second-largest economy, shed 1.3 percent.