By V. PHANI KUMAR in Hong Kong and SHRI NAVARATNAM and LESLIE SHAFFER in Singapore
China shares fell sharply, hitting a 14-month intraday low and pushing other Asian markets down, on concern over global growth and that domestic policy tightening could cause a slowdown at home.
Japanese shares were also hit as a sharp fall in the euro and the U.S. dollar against the yen dragged on the nation's exporters, while resource stocks stumbled across the region on concerns about the demand outlook.
"There are increasing concerns about global growth with talk of double dips on the rise," said ANZ bank senior economist Khoon Goh in Wellington. "What is clear is that investors lack any conviction and we are set for ongoing volatility and choppy price action," he said.
"A degree of risk aversion has crept back into the market ahead of Friday's U.S. jobs report," Credit Agricole Corporate & Investment Bank wrote in a note.
China's Shanghai Composite reversed early gains to tumble 4.3% for its worst percentage fall in more than a month to end at 2,427.05, its lowest finish since April 2009. The sharp reversal also helped pull down other regional markets, with Hong Kong's Hang Seng Index dropping 2.3%, Japan's Nikkei Stock Average shedding 1.3%, South Korea's Kospi losing 1.4%, Australia's S&P/ASX declining 0.9% and Taiwan's Taiex sliding 1%.
In afternoon trading, India's Sensex gave up 1.7% and Singapore's Straits Times dropped 1.5%.
European shares opened to a weak start, while U.S. index futures pointed to a lower opening, with the Dow Jones Industrial Average futures down 117 points in screen trade.
Chinese property, airline and metal stocks fell on concerns about a slowdown in the economy. Gemdale slumped 9.9% and Poly Real Estate Group dropped 7.1%, Jiangxi Copper tumbled 7% and Hainan Airlines plummeted 8.8% in Shanghai.
"It's already the end of the first half, and people are starting to worry about the economic growth in China, especially as European countries and the U.S. seem to lack the momentum," said Castor Pang, research director at Cinda International.
The drop came after New York-based Conference Board said its leading economic indicator for China rose 0.3% in April, correcting a previous reading of a 1.7% increase and attributing the earlier reading to a calculation error. The 0.3% reading represents a sharp fall from the 1.2% rise recorded in March.
Analysts also cited concerns over the slightly lower-than-expected pricing range for the domestic part of Agricultural Bank of China's initial public offering. "The IPO price range was pegged slightly lower, reflecting that investment activity may be slowing down," said Xu Yinhui from Guotai Junan Securities. "The market has been sluggish in the past few sessions, and investors may just be continuing the bearish trend that they are familiar with since there is a lack of market boosting news."
Among lenders, China Construction Bank dropped 3.5% and China Merchants Bank fell 3.6%, but outperformed the benchmark index.
Tokyo shares turned lower, with exporters losing ground on the yen's strength. Casio Computer fell 3.8%, Fanuc dropped 2.2% and Isuzu Motors lost 2.5%.
A few other exporters with high exposure to the euro zone outperformed the Tokyo market despite the European currency's decline against the yen, supported by hopes earnings will be better than previously expected. Sony rose 0.2% and Nikon fell 0.3%. "These shares have reached levels where further weakness is unlikely in view of their earnings (and forecasts)," despite lingering uncertainties surrounding the general European economic outlook, said Toshikazu Horiuchi, equity strategist at Cosmo Securities.
Also helped by expectations of strong earnings, Asiana Airlines gained 5.2% in Seoul.
Resource-linked shares sank lower, with BHP Billiton dropping 1% and Woodside Petroleum skidding 1.6% in Sydney, Inpex shrinking 3.8% and trading house Mitsui & Co. losing 3.2% in Tokyo, Sterlite Industries falling 2.2% in Mumbai and Cnooc tumbling 3.6% in Hong Kong.
Spot gold was at $1,235.20 per troy ounce, down $3.40 from late New York Monday. August Nymex crude-oil futures fell $1.67 to $76.58 per barrel on Globex.
Shares of Li & Fung tumbled 4.8% in Hong Kong after UBS downgraded the supplier to global retailers such as Wal-Mart Stores to sell from neutral, citing weaker orders from Europe.
Taiwanese shares erased early gains as investors locked in profits in the banking and transportation sectors, which had recently risen ahead of the expected signing Tuesday of a wide-ranging Taiwan-China trade pact, which would reduce tariffs and open Chinese service sectors to Taiwan.
But while the trade pact is a long-term positive for Taiwan, the stocks' moves likely are reflecting short-term gains, said Polaris Securities head of research Kenner Wang. Cathay Financial Holding lost 2.2% and China Airlines fell 3.7%.
In Sydney, engineering and infrastructure services firm Downer EDI sank 6.3%. The fall came even as the company disputed media claims Tuesday that it was manipulating its working capital to boost its fiscal year-end accounts, and said it retains "ample liquidity" with over 600 million Australian dollars ($516 million) in cash and available debt facilities.
Among other markets, New Zealand's benchmark NZX 50 dropped 0.6% and Philippine shares ended 0.3% higher. Thailand's SET Index fell 1.1% and Indonesian stocks sank 2.5% by late afternoon.
In foreign-exchange markets, a spike in risk-aversion following the sharp losses in China shares pulled the U.S. dollar and the euro down against the yen. The euro was buying 107.92 yen from 109.78 yen late in New York on Monday, and the dollar was at 88.59 yen, compared with 89.41 yen. The single currency was fetching $1.2189 from $1.2276.
Mike Jones, currency strategist at the Bank of New Zealand, said that apart from a raft of U.S. data in coming days, the spotlight will also fall on the expiry of a large-scale European Central Bank lending facility later this week. "How investors cope with the expiry of the ECB's 12-month long-term refinancing operation on Thursday will provide some indication of the degree of stress that euro-zone banks are under," he said.
September Japanese government bond futures were up 0.38 at 141.47 points, after the yield on the 10-year U.S. Treasury slipped to the lowest level since April 2009. The 10-year cash JGB yield fell 3.5 basis points to 1.115%.
