Asian stocks fell on Tuesday as uncertainty grew about U.S. plans for a bank bailout, while the euro trimmed some losses after Russia denied a media report that Russian banks will ask Moscow to help them restructure its corporate debt owned to foreign creditors.
European shares lost more than a percent in morning trade, also stirred by mixed reaction to a roughly $7 billion net fourth quarter loss from UBS.
Japan's Nikkei business daily said Russian banks would ask Moscow to renegotiate with European and other foreign banks to postpone repayment on up to $400 billion of loans, sending the euro tumbling against the dollar and yen.
A Russian government spokesman later said it was not considering a corporate debt restructuring and was not in talks with foreign banks on the issue.
The euro was down 0.8 percent at $1.2903, after falling to $1.2811, according to Reuters data.
Against the yen, the euro fell 0.6 percent to 118.27 yen after hitting a low of 116.72 yen.
Investors were spooked by conflicting reports about the U.S. bank bailout and the fate of a "bad bank" to buy distressed assets from commercial banks as part of a financial rescue package.
"It's starting to seem as if the economic stimulus plan will be approved one way or another, but the bank bailout is really important, and this uncertainty is growing," said Takashi Ushio, head of the investment strategy division at Marusan Securities in Tokyo.
"Will the $500 billion be enough? There's a lot of unknowns that make it hard to trade at this point, though at the very least it does seem as if the government may abandon the idea of handling the 'bad bank' on its own."
A "bad bank" would remove soured assets which are contaminating banks' balance sheets, freeing them up to lend again, but the expected use of taxpayers' money and fears of further losses have made the issue highly politically charged for U.S. President Barack Obama.
Wall Street finished flat on Monday as traders' anxiety grew after the announcement of the bank plan was postponed by a day.
An $838 billion economic stimulus bill passed a key procedural hurdle in the U.S. Senate on Monday, paving the way for the chamber to pass the bill on Tuesday. But then final negotiations must begin with the House of Representatives -- whose own bill is priced at $819 billion -- on a compromise bill.
Japan's Nikkei share average fell 0.3 percent, shedding early gains as the yen climbed against the euro on the Russian debt restructuring report and as uncertainty grew over the U.S. bank rescue plan.
However, Nissan Motor Co surged 7.3 percent after it announced drastic steps on Monday to cope with the recession, saying it would cut 20,000 jobs. It joined a growing list of automakers warning of red ink this year.
The MSCI index of Asia-Pacific stocks outside Japan fell about 0.7 percent.
Hong Kong shares rose for a fifth straight session after inflation data from China showed Beijing had ample room to cut interest rates, but turnover languished amid conflicting reports about a U.S. rescue plan.
The benchmark Hang Seng Index closed higher at 0.8 percent, while shares on the Shanghai bourse rose 1.8 percent.
Australian stocks fell 0.6 percent, dragged down by major banks on uncertainty surrounding the U.S. financial rescue plan, but rare profit surprises from electronics retailer JB Hi-Fi and hearing implant maker Cochlear gave the market some support.
South Korean shares fell 0.3 percent as the government acknowledged for the first time that it expected Asia's fourth-largest economy to shrink this year.
However, Taiwan stocks rose 0.7 percent to a one-month closing high, led by Cathay Financial after some financial firms returned to profit following previous losses stemming from the global financial crisis.
Singapore's Straits Times Index gained 1.3 percent, while India's Sensex rose about half as much.
RUSSIA WOES
Foreign exchange markets remained skittish despite Russian denials that the government and banks were in talks to help companies restructure foreign debt.
A banking industry official told Reuters no proposal had been submitted to the government, but said bankers had discussed a restructuring plan for corporate debt at a meeting last week.
"As banks in Europe have a close relationship with Russia, the report raised worries about their losses which hurt the euro," said Yuichiro Nakamura, a dealer at Shinkin Central Bank.
The Australian dollar retreated from three-week highs as worries about global economic stability resurfaced and a dismal business confidence survey reaffirmed the risk of a recession at home.
The yield on the benchmark 10-year U.S. Treasury note eased almost 1 basis point to 2.97 percent. Treasury debt prices fell on Monday, taking benchmark yields to their highest levels in over two months.
Japanese government bond futures edged down 0.14 point to 138.42.
Oil prices held around $40 a barrel, pausing after an overnight decline as investors awaited progress on the U.S. economic stimulus package.
Gold extended the previous day's fall of almost 2 percent to trade at around $894 an ounce in the Asian day, before retracing to around $895 in early European trade.
