Materials stocks and financials bore the brunt of the selling as investors fretted about the seemingly inexorable slide toward a fresh global recession, with debt woes in Europe and the U.S. blunting the consumption outlook.
Regional sentiment took a hit after the U.S. congressional deficit-reduction committee said Monday it failed to reach an agreement on slashing the U.S. budget gap, triggering mandatory cuts to military and other spending starting in 2013.
"Investors are seeing this situation as further evidence that 'the lights are on but no one's at home' when it comes to political leadership of the world's major economies. The changed circumstances of recent years require constructive action to foster economic growth and reduce debt over time," said Ric Spooner, Chief Market Analyst at CMC Markets in Sydney. "However, governments are finding it difficult to overcome divergent philosophies and sectional interests to achieve practical solutions."
Japan's Nikkei Stock Average fell 0.4%, Australia's S&P/ASX 200 dropped 0.7%, South Korea's Kospi Composite rose 0.4% in choppy trade after earlier dropping nearly 2%, while New Zealand's NZX-50 slid 0.4%.
Dow Jones Industrial Average futures were up 18 points in screen trade.
Worries over possible European sovereign-debt contagion effects continued to rattle markets after Moody's stirred the pot Monday saying it may change its stable outlook on France's triple-A rating to negative in the coming months, and that German banks have sizable exposures to troubled euro-zone countries.
Materials plays were broadly weaker following declines in metals prices Monday. In Sydney, Rio Tinto fell 2.8% and Iluka dropped 3.8%, while Sumitomo Metal Mining skidded 2.1% in Tokyo.
Australia's OneSteel tumbled 8.6% after rival BlueScope Steel announced a A$600 million capital raising to pay down debt amid tough conditions for Australian steelmakers.
Financial stocks were also lower across the region amid concerns over the outlook for European banks. In Seoul, Korea Exchange Bank lost 1.7%, and Commonwealth Bank of Australia fell 1.0% in Sydney, while Nomura Holdings slipped 2.1% in Tokyo.
In foreign exchange markets, the U.S. dollar benefited against regional currencies as risk aversion set in following failed debt-reduction negotiations in the U.S. and amid continued concerns in Europe. "The U.S. dollar remains a clear beneficiary in the 'risk off' environment enveloping markets at present," Credit Agricole said in a note to clients.
The greenback briefly rose to a four-week high against the Korean won, and was recently at KRW1,143.70 from KRW1,140.70 late Monday in Seoul. The Australian dollar is trading at multiweek lows and was fetching $0.9874, from $0.9972 late Monday in Sydney.
The euro was at $1.3505 against the dollar, from $1.3490 late Monday in New York, and at Y103.93 against the yen, from Y103.75. The dollar was at Y76.96, from Y76.90.
Spot gold was at $1,673.80 per troy ounce, down $3.50 from its New York settlement on Monday. January Nymex crude oil futures were up eight cents at $97.00 per barrel on Globex. For the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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