Riskier assets fell broadly on Monday, dragging down Asian shares, copper and oil but the dollar strengthened as investors shifted their focus to weak economic fundamentals while monitoring progress in the euro zone debt bailout scheme.
A 0.1% fall in U.S. stock futures suggested a soft Wall Street start and financial spreadbetters expected London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX to open as much as 0.9% lower.
The MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4%, with a 1% drop each in its materials and energy sectors leading the declines.
The U.S. Federal Reserve and the Bank of Japan launched fresh monetary easing steps over recent weeks while the European Central Bank adopted a plan to buy bonds from euro zone states requesting assistance, to help drive down their borrowing costs.
"The Fed-inspired euphoria and the reaction to that euphoria both appear to have run their course now, bringing markets to a near-term equilibrium level where players seek guidance for next direction," said Toru Yamamoto, chief strategist at Daiwa Securities.
"The markets are now in a broad framework of pitting the real economy against the reflationary policies," he said, adding that downside risks were growing amid uncertainty in Europe and wariness ahead of U.S. corporate earnings reports next month.
Resource-reliant Australian shares fell 0.5% and Hong Kong shares faced profit taking to ease 0.1%.
Tokyo's Nikkei average dropped 0.4% to a one-week low as a firmer yen added to woes for automakers and other exporters, which have been under pressure due to a territorial dispute between Japan and China.
DOLLAR STRENGTH WEIGHS
The dollar index measured against a basket of key currencies rose 0.2%, weighing on dollar-based commodities from oil to copper, while also dampening gold.
The Australian dollar, often tied to investor risk appetite, slipped 0.3% to $1.0417 and the euro fell 0.3% to $1.2941, but the safe-haven yen edged up 0.2% against the dollar to 78.03 yen.
Many traders see the downside to dollar/yen as limited given wariness over Japanese authorities' intervention and U.S. Treasury yields not falling despite the recent aggressive U.S. monetary easing.
U.S. crude fell 0.8% to $92.12 per barrel and Brent futures dropped 0.7% to $110.64. London copper fell 0.7% to $8,220 a tonne.
"The optimism (over the measures) is gone and investors are starting to realise it's not backed by good economic data," said Jonathan Barratt, chief executive of BarrattBulletin, a commodity research firm in Sydney. "Investors are not confident, that is why they're punishing commodities, including oil."
But gold may draw investors back over the longer term as a reflationary policy raises future inflationary risks.
"I wouldn't be surprised to see gold pull back to the $1,750 area but dips will continue to be bought," a Singapore-based trader said.
Spot gold slumped 1.2% to $1,760.64 an ounce, after hitting $1,787.20 on Friday, near this year's high of $1,790.30 hit on Feb. 29.
SPAIN AT CENTRE OF DEBT CRISIS
Spain was considering freezing pensions and speeding up a planned rise in the retirement age, raising hopes for the country applying for a bailout, but uncertainty remained over whether and when such a move would come.
Spain insisted on Saturday it will not rush to seek a sovereign bailout, even as the country suffers from a high deficit, soaring debts, a banking sector burnt by the bursting of a real estate bubble and a deepening economic contraction.
"Now that the game of guessing what central banks from around the world are going to be doing with their endless pools of liquidity, we are now back to guessing which country is going to be bailed out and when," said Neal Gilbert, currency strategist at GFT Forex in New Jersey, in a note.
Spain has displaced Greece from the centre of the euro zone debt crisis, as markets worry it may eventually need external aid to help resolve its problems. A credit review by ratings agency Moody's, due by end-September, could prompt such a move if Moody's downgrades Spanish debt to junk status.
Another uncertainty which persisted as major economies took action is whether China will ease monetary policy, with its economy on course to show slower growth for the seventh straight quarter over the current period.
