Oil extended losses toward $111 on Tuesday after Hurricane Gustav eased before slamming into the U.S. Gulf Coast, pushing up the U.S. dollar to a 7-month high against the euro and causing a broad selloff of commodities.
The South Korean won recovered after a steep decline on Monday, supported by the government which said in a hastily arranged meeting it had the will and ability to stop the currency from weakening. However, stocks slipped further on fears about a flight of capital from Asia's fourth-largest economy.
Economic deterioration and public unrest in the region continued to take a toll on its political establishment. Japan's unpopular prime minister resigned late on Monday , which had a limited impact on the equity and bond markets, and a state of emergency was declared in Bangkok, which weighed on the baht.
Crude's retreat, on top of a steep $4 fall on Monday, weighed on U.S. corn and soy prices, which fell 3 percent after a U.S. holiday on Monday.
The euro was down a modest 0.1 percent at $1.4583 after earlier dipping to around $1.4555, the lowest since February 14.
The British pound was down 0.5 percent at $1.7921 extending losses after an 8.6 percent plunge in August.
Japan's Nikkei share average rose 0.45 percent, as lower oil prices encouraged investors to buy beaten down shares of companies in the technology sector after a sharp selloff on Monday.
Investors were grappling with the implications of Fukuda's resignation, which made him the second Japanese leader to resign in less than a year and threatened policy vacuum as the economy hangs on the brink of recession.
"His support rate was already quite low and there weren't many expectations for his policies, so the market isn't exactly despairing," said Takahiko Murai, general manager of equities at Nozomi Securities in Tokyo. "It's still too soon to say much more. We need to know more about who will succeed him and what sort of policies they adopt."
South Korea's KOSPI was down 0.1 percent after earlier slipping to its lowest since March 2007.
The country's worsening balance of payments has made investors nervous that nearly $7 billion of government bonds held by foreign investors maturing next week will not be rolled over.
"We think the selling spree is still an ongoing trend. Moves to cut losses amid a heightening sense of crisis will likely continue today," said Juhn Chong-kyu, a market analyst at Samsung Securities in Seoul.
The MSCI index of Asia-Pacific equities outside of Japan edged up 0.2 percent after earlier touching the lowest since March 2007. The index has fallen 28 percent so far this year.
Investors took refuge in the U.S. dollar, shying away from slowing economic growth in Southeast Asia and in particular political uncertainty surrounding Thailand.
The dollar rose 0.4 percent against the Thai baht to 34.42 after Thailand's prime minister declared a state of emergency in Bangkok and gave the army control to quell long-running protests.
"The baht is obviously under pressure today because of the political troubles in Thailand — and more specifically today's escalation in tensions," said Callum Henderson, head of foreign exchange strategy with Standard Chartered Bank in Singapore.
"However, the economic backdrop is not exactly constructive either. Growth is slowing and inflation — judging by the last number — is starting to come off again."
Central banks in Thailand, Malaysia and Indonesia were all suspected to stepping into the currency market to defend their falling currencies, dealers said.
