Asian shares and other growth-linked assets fell on Tuesday as slowing economies in China and Europe and tension over Iran dampened sentiment, prompting investors to take profits from recent rallies that had been driven by ample liquidity.
China's lowering of its growth target and data pointing to Europe possibly slipping back into recession eroded the optimism that had been setting the tone for global markets since the European Central Bank's first massive liquidity injection in late December.
Abundant funds in the system stabilised markets and mitigated concerns about a crisis triggered by European banks' financing difficulties, but uncertainty about global economic prospects led investors to trim their risk exposure.
Oil also pared earlier gains, underscoring the market's vulnerability in the face of broad selling across asset classes.
"The supply risk premium to Iran is supporting prices, but the main volatility is from the demand side," said Jeremy Friesen, a commodity strategist at Societe Generale.
"It's interesting that weak economic data hasn't caused a sell-off in oil, but as more data emerges this week, it could disappoint investors enough to weaken prices," Friesen said.
The MSCI Asia Pacific ex-Japan index fell 1.4%, dragged lower by Chinese shares and the pan-Asian mining sector. Tokyo's Nikkei average slipped 0.8%.
Resource-reliant Australian shares fell on worries over weak demand from China and its currency extended losses to a fresh one-week low around $1.0604 after the Reserve Bank of Australia kept interest rates steady, as expected. The New Zealand dollar hit a six-week low at $0.8133.
Financial spreadbetters expected major European markets to open around 0.2% lower.
Copper, typically driven by the demand outlook, fell. London copper eased 0.7% to $8,445 a tonne and Shanghai copper fell 1% to 60,540 yuan ($9,600) a tonne.
Some analysts, however, said markets need not be too worried about China cutting its growth target to an eight-year low of 7.5%, from 8%, and shifting its priorities towards boosting domestic consumer demand.
"There is no need to be so pessimistic about slowing demand from China," said Chiyuki Shiraiwa, economist at SMBC Nikko Securities.
"Boosting domestic consumption will strengthen demand for a variety of goods from overseas, broadening opportunities beyond resource-rich countries to export to China."
Hong Kong shares and Shanghai equities both slid more than 1.5%.
Sentiment in Asian credit markets was also cautious, with spreads on the iTraxx Asia ex-Japan investment-grade index widening by a couple of basis points.
UNCERTAINTY OVER GREECE
Oil was the only market bucking the downtrend earlier in the day, but they also turned negative as other markets deepened their slide.
Brent crude fell 0.2% to $123.60 a barrel while U.S. crude dipped below $106.70 a barrel.
The euro eased 0.2 percent to $1.3193, inching closer to Monday's two-week low of $1.3160. a bearish technical outlook sent spot gold down 0.2 percent to $1,702 a tonne.
Among such factors is the uncertainty surrounding Greece, which needs to complete a bond exchange with private holders, scheduled to close on March 8, before a second bailout is paid.
