Asia shares fall, dollar gives up early gains

The euro recovered to $1.4904 by 0630 GMT (2:30 a.m. EDT) after sliding to $1.4850 in early trade, but it still well below a 14-month high of $1.5064 hit on Monday.

U.S. equity futures were flat.

Japan's Nikkei index <.N225> dropped 1.5 percent and market sentiment across Asia was subdued after Wall Street fell.

"Japanese earnings for the first half have been better than expected so far, but the fact the market remains susceptible to falls in overseas markets shows that investors still lack confidence about the outlook for the economic recovery," said Mitsuo Shimizu, deputy general manager at Cosmo Securities.

Shares in Mitsubishi Corp <8058.T> skidded 5.5 percent as trading houses were hurt by lower oil and commodity prices in the past day.

Oil was at $78.78, below $79 a barrel for a fourth day, amid concerns that a sluggish global economic recovery will limit fuel demand. It hit $82, its highest level in a year last Wednesday.

Speculation is growing that governments and central banks of some major economies may eventually withdrawal of stimulus measures that has been a key factor in driving a global recovery.

The benchmark 10-year U.S. Treasury yield hit a two-month high on Monday, partly due to expectations the Federal Reserve may drop or modify its commitment to keeping rates low for an "extended period" at next week's meeting.

RISK AVERSION

Investor concern that global economic recovery could be slow weighed on markets and encouraged profit taking in some riskier assets, including the Korean won and the Philippine peso, which hit a one-month low at 47.30 to the dollar.

The MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> was 1 percent lower while the Thomson Reuters index of regional shares <.TRXFLDAXPU> was down 1.4 percent.

Shanghai shares <.SSEC> ended 2.8 percent lower, the biggest one-day low in five weeks.

India's main share index <.BSESN> was down 0.5 percent by 0553 GMT, trimming losses after the central bank held interest rates but began the first phase of its exit from expansionary policy by ending some liquidity support measures.

However, with the world economy recovering and Asian interest rates likely to rise before U.S. rates, analysts expect underlying weakness in the dollar to persist and the oil price to recover.

"While the U.S. dollar strengthened overnight, we do not think this will be a trend," said Song Kyung-keun, an analyst at Dongbu Securities in Seoul. "To what extent the won and crude prices strengthen are two key uncertainties."

Against a basket of major currencies, the dollar <.DXY> dipped 0.3 percent, giving up early gains.

In Australia, shares dropped 1.6 percent with mining giants BHP Billiton and Rio Tinto down 2.2 percent. and

ASIAN EARNINGS

Shares in China's leading Internet search company Baidu Inc plunged nearly 13 percent after hours in New York after it warned that the transition to a new advertising technology would crimp revenue this quarter.