Shares fell on Tuesday as investors liquidated riskier assets and sought refuge from the political turmoil fuelling fears of Greece's exit from the euro and threatening to ruin any progress made so far to solve the euro zone debt crisis.
The euro slipped to a four-month low of $1.2815 early on Tuesday and the risk-sensitive Australian dollar hovered near a five-month low of $0.9957 touched on Monday. The US dollar and the yen, perceived as safe haven currencies for their relative stability, stayed well bid.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3% to a four-month low, while Japan's Nikkei share average opened down 0.7%.
Greek president President Karolos Papoulias has gathered party leaders to hear his proposal on Tuesday, but opponents of austerity steps needed in exchange for an international bailout expressed little hope for resolving a deadlock, pushing the country towards a new vote which the anti-bailout leftists are likely to win.
European leaders say that unless Greece fulfills its bailout commitments, they will cut off funding, which could oust Athens from the euro, threatening to put in disarray the restructuring efforts by other highly indebted euro zone economies which had agreed to harsh fiscal reforms in return for rescue funds.
"Risk has primarily traded with European headlines, which we suspect will continue to put a damper on prospects until a more sustainable solution can be found to Greece's political imbroglio," said Morgan Stanley in a research note.
With economic growth seen to be slowing more rapidly than previously thought, any steps taken by China ease both monetary and fiscal policy would over time prove favourable for markets, it said.
More From This Section
"This, with the recent decline in oil prices, may give markets comfort in anticipating more (front-loaded) policy easing by EM central banks - another eventual positive for risk," Morgan Stanley said.
The U.S. benchmark Standard & Poor's 500 Index on Monday fell below an important support level at 1,340, while the KBW Bank Index slid 2.6%, pressured by JPMorgan Chase & Co which announced the exit of a top executive after suffering trading losses that could reach $3 billion or more.
Flight to safe haven
Riskier assets gave way to safe haven US and German debt on Monday, pulling the benchmark 10-year Treasury yields below a key resistance level of 1.8% and German 10-year yields down to a record low 1.434%.
Spanish and Italian bond yields and default insurance costs surged on Monday on investor fears of potential Greek exit from the euro and over Spain's ailing banks.
Broad risk aversion pressured Asian credit markets, widening the spread on the iTraxx Asia ex-Japan investment-grade index by 4 basis points on Tuesday, but Japanese government bonds rallied to their highest since late 2010.
Flight from riskier assets, together with a firmer dollar, further undermined commodities, forcing a benchmark index for resource markets to a 19-month low.
The Thomson Reuters-Jefferies CRB index fell 1.2% to settle below 290 points on Monday, having shed nearly 6% on the year after a downtrend that began with the slide in oil prices over the past few weeks.
Spot gold recovered from heavy losses to stand up 0.1% at $1,558.55 an ounce on Tuesday after hitting a low of $1,556.50 on Monday, its lowest since December 30, 2011.
US crude prices dropped 0.5% to $94.31 a barrel on Tuesday, after falling more than a dollar the previous session, on worries over slack demand as European economy faltered. Brent crude fell 0.5% to $111.06, after slumping to $110.04 the day before to a near four-month low.
A European downturn may not be as moderate as policymakers hope, with a report published on Monday showing the euro zone's industrial production unexpectedly falling in March.
Data due on Tuesday will likely suggest the euro zone slipped into its second recession in just three years in early 2012, as the debt crisis threatens to southern Europe into a downward spiral and widens the split with Germany.