India's currency cartwheeled to historic lows on Monday while markets in Indonesia took a spill, evidence of how rising U.S. yields are making it harder for emerging nations to fund their current account deficits.
The turbulence heightened investor caution ahead of Wednesday's minutes of the Federal Reserve's last policy meeting, with many fearing they might only add to the confusion about when it might scale back stimulus.
That helped gold reach its highest in two months, while keeping share markets constrained across Asia.
In Europe, Britain's FTSE futures inched up 0.2% in early deals. The German DAX futures were down 0.04%, as bund yields climbed to the highest since early 2012.
The Indian rupee slid as far as 62.50 per dollar, emphatically breaching the previous low of 62.03. The share market lost 1.4%, on top of a 4% drubbing last Friday.
The currency has been hurt by investor frustration at the slow pace of economic reform in India, which has made it harder for the country to finance its hefty current account shortfall.
The Reserve Bank of India has tried to restrict how much Indian residents and companies can send offshore, but that only raised fears of outright capital controls that would further undermine the confidence of foreign investors.
Indonesia's rupiah shed 0.9% to four-year lows at 10,475 per dollar, with share and bond markets weakening in the wake of data showing a sharp widening in the country's current account deficit.
The task of attracting funding for these shortfalls has become ever tougher as investors priced in a start to Fed tapering and pushed up U.S. market rates.
Yields on 10-year Treasury debt were up near two-year highs at 2.87% on Monday, putting upward pressure on borrowing costs across the globe.
The strain showed in MSCI's broadest index of Asia-Pacific shares outside Japan which fell 0.5%. It had ended last week with gains of 1.45%, but that merely recovered ground lost during the previous two weeks.
Stocks in Shanghai rebounded to be up 0.6%, The Korean market eased 0.1% but Thai shares shed 1.2% as data there showed the economy slipped into recession last quarter.
As usual Tokyo's Nikkei share average went its own way and rose 0.8% on Monday, brushing aside data showing the third-largest trade deficit on record as imports rose even faster than exports.
Australia's S&P/ASX 200 index was dead flat.
Crucial later in the week will be an early reading on Chinese manufacturing from HSBC. Recent data suggested the economy might be stabilising and any improvement in the purchasing manager index will be welcomed by Asian investors.
GOLD ON A ROLL
The U.S. dollar gave up early, modest gains to stand at $1.3326 per euro, barely moved from Friday. Against the yen it pulled back to 97.59, while the dollar index was a shade firmer at 81.324.
The dollar has been in gradual decline for the past six weeks so, in part on concerns the prospect of Fed tapering would scare foreign investors out of U.S. bonds.
Figures out last week showed China and Japan — the two largest foreign holders of U.S. debt — were at the forefront of a $66 bln exodus from long-term U.S. Treasuries in June, dumping a net $40 bln.
Still, at some point yields should reach levels that are attractive to investors once more.
Hopes for a pick-up in growth globally has also supported commodities recently, with copper holding at $7,372 a tonne after hitting a 10-week peak of $7,420 on Friday.
Gold and platinum have gained as well, though they could be threatened if the Fed does wind down its stimulus. Gold made a fresh two-month high of $1,384.10 an ounce.
Oil futures shrugged aside early losses to sneak higher, having recorded their the biggest weekly percentage gain in six weeks as turmoil in Egypt and Libya stoked worries about supply.
Brent crude futures for October were little changed at $110.38 a barrel, was were U.S. oil for September at$107.39.
