"It seems quite clear that China has entered a cycle of interest rate hikes and that's going to put regional and global stock markets under some pressure in the near term, but the latest move (from Beijing) had been widely anticipated and I don't expect investors to overreact," said Choi Keun-Hwan, a senior currency dealer at Busan Bank in Seoul.
Japan's Nikkei Stock Average fell 0.4%, South Korea's Kospi Composite was 0.7% higher and The Shanghai Composite Index was down 1.7%. Markets in Australia and New Zealand were shut for a holiday.
Hong Kong's Hang Seng Index fell 1.0%, Taiwan's main index lost 0.2% and India's Sensex was 0.2% higher. Dow Jones Industrial Average futures were three points higher in screen trade.
Japanese stocks were weaker as investors took profit on Monday's rise in Tokyo shares following the DJIA's slip in New York trade.
Mizuho Investors Securities senior strategist Masatoshi Sato said the selling was limited by the government's industrial output forecasts just before the market opened, which projected a 3.4% rise in December and a 3.7% gain in January.
"This data will alleviate concerns that the Japanese economy, now at a standstill, will decline further," he said.
Twenty two of the Topix's 33 subindexes were lower. Canon was down 1.1%, Advantest fell 1.9% and Honda Motor lost 0.6%.
Mizuho Financial Group rose 2.0%, supported by president and chief executive officer Takashi Tsukamoto's comments in a Dow Jones Newswires interview that the company's efforts to meet capital adequacy requirements were progressing and there was no need to issue additional new shares.
Financial stocks were weak in Shanghai with securities firms leading losers on concerns that the People's Bank of China will continue to tighten monetary policy after it reiterated Monday the need to prioritize price stability in the nation.
Despite the strength of the country's economy, China "faces arduous tasks in managing money, credit and liquidity and in preventing financial risks," the PBOC said in a statement Monday.
In a separate statement, PBOC Vice Gov. Hu Xiaolian argued that China's large external surpluses are contributing to the problem of excess liquidity, and said reform of the exchange rate mechanism helps contain inflation and asset-price bubbles.
"The PBOC's emphasis again on controlling prices will intensify tightening concerns and are hitting the already-weak market sentiment, especially following the weekend interest rate hike," said Zhang Xin, an analyst at Guotai Junan Securities.
Citic Securities lost 1.6%, Everbright Securities fell 0.9% and Haitong Securities was 1.8% lower.
The Korean stock market was supported by gains in heavyweight technology stocks and construction plays.
But with many traders having closed their positions for the year, Shinyoung Securities analyst Im Tae-geun said "the Kospi may not rise much from here simply because trading is thin" before the year-end.
Tech stocks were mostly higher after their recent underperformance with Samsung Electronics gaining 0.9% and Hynix Semiconductor up 4.1% while construction plays were up on hopes for an improvement in earnings next year, helped by a recovery in the domestic housing market. Daewoo Engineering & Construction was up 3.8% while GS Engineering & Construction rose 9.6%.
Hyundai Elevator rose by its 14.9% daily limit to KRW127,500 after Schindler Deutschland GmbH, a Germany-based affiliate of Switzerland's Schindler Holding AG, increased its stake in the Korean elevator company. Schindler Deutschland GmbH now holds 35.27% stake in Hyundai Elevator as its single biggest shareholder, while Hyundai Group affiliates collectively have a 50.9% stake.
Elsewhere in the region, Philippine shares were flat, Malaysian shares gained 0.6%, Singapore's Straits Times Index rose 0.2% and Thai shares rose 0.2%.
In foreign exchange markets, the euro was higher against yen and the U.S. dollar. Kenichiro Ikezawa, a fund manager at Daiwa SB Investments, said the euro/yen cross was up on short-covering after players failed to break below the 108.33 level on Monday.
The U.S. dollar was at Y82.60 against the yen, from Y82.84 in late New York trade Monday while the euro was at $1.3239 against the greenback, from $1.3147 and Y109.28, from Y108.88.
Otherwise, there was little for players to trade on with Japanese data in early trade largely in line with expectations.
Japan's core consumer price index in November fell 0.5% on-year, compared with a fall of 0.6% fall tipped by a poll of economists by Dow Jones Newswires and Nikkei, while industrial production in November rose 1.0% from the month before, in line with expectations.
HSBC Securities chief economist Seiji Shiraishi said the CPI data showed Japan was still in a strong deflationary trend, and added that it would be hard for Japan to overcome deflation given factors such as its declining population. However, he says "deflation may ease (in coming months) if the global economic conditions prove strong, (and) help the Japan's external demand, leading to a rise in domestic demand."
Lead March Japanese government bond futures were up 0.09 at 139.94 points, lifted by U.S. Treasury gains on Monday. The yield on the key 10-year cash JGB was flat at 1.160%.
Mitsubishi UFJ Morgan Stanley Securities senior strategist Katsutoshi Inadome said "aggressive trading is unlikely to happen for the rest of the day as there are not many news events scheduled in Japan today." Thus he expects investors will be likely to watch the U.S.'s five-year Treasury auction later in the global day for cues.
Spot gold was at $1,390.10 per troy ounce, up $6.00 from its New York close Monday while February Nymex crude oil futures were up 26 cents at $91.26 per barrel.
-Colin Ng, Dow Jones Newswires; +65-6415-4140; colin.ng@dowjones.com
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