Asian shares fell on Wednesday on concerns Europe's debt crisis has hurt confidence in the global economy and is weighing on corporate earnings, while the Slovak parliament's rejection of a plan to expand the euro zone rescue fund added to uncertainty.
Growth-sensitive Asian shares were hit the most, while concerns that a delay in expanding the bailout fund could slow momentum in efforts to prevent the euro zone's debt woes from morphing into a banking crisis led to a widening in Asian credits.
The broader trend is dictated by the problems in Europe, and Slovakia's rejection was negative to sentiment, as beefing up the fund is vital in providing a sense of security, said Hirokazu Yuihama, senior strategist at Daiwa Capital Markets.
S&P 500 futures eased after below-forecast results from Alcoa Inc.
Slovakia is the only euro zone country that has yet to approve a plan to boost the funds available to the bailout vehicle, and a re-vote was expected later this week.
While the main opposition party was set to support the measure now the government has resigned, the twist has added to market nervousness just as European authorities were striving to come up with concrete steps to avoid a wider contagion.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> fell 0.6 percent, led by a near 2 percent drop in the materials sector <.MIAPJMT00PUS>.
Japan's Nikkei average <.N225> was down 0.7 percent, after
Alcoa Inc, the largest U.S. aluminum producer, said on Tuesday slowing economic growth knocked prices for the metal lower, denting its third-quarter profit and sending its shares down in after-hours trading.
Those who were looking for reassurance about the U.S. earnings season didn't find it, said Kenichi Hirano, operating officer at Tachibana Securities.
Asian credit markets reflected renewed bearish sentiment, with the iTraxx Asia ex-Japan investment grade index widening by about 15 points.
A Hong Kong based fund manager said recent market gains were largely a technical rebound from last month's sell-off, adding that a lack of inflows from pension and mutual funds, so-called real money, was stymieing new bond corporate issues.
All that you are seeing now is short-covering and fast money. There is no fund inflows into Asia and at this point no issuer can come to the market. Will they (issuers) pay up? I doubt it, the fund manager said.
Brent crude fell on Wednesday, snapping five days of gains, after OPEC cut its global oil demand forecast and as the Slovak hitch in the euro zone bailout fund plan rattled investors' confidence across asset classes.
Brent was down 0.3 percent at $110.37 a barrel while U.S. crude futures fell 0.8 percent to $85.09.
Industrial metals such as copper also fell on concerns over an economic slowdown and caution before Chinese economic data due later in the week including CPI, PPI and trade balance.
The euro eased, as a recent rally stalled after the Slovak vote, trading down around 0.3 percent on Wednesday at $1.3604.
Market sentiment had improved this week, after a weekend pledge by German and French leaders to come up with a plan to tackle the debt crisis.
Banking and regulatory sources said on Tuesday that Europe's banks would have to achieve a significantly stronger capital position under a quick-fire regulatory health check and may need to raise some 100 billion euros ($137 billion).
Jose Manuel Barroso, president of the European Union's executive European Commission, said he would propose a bank recapitalization plan on Wednesday, even though there is no agreement yet on where the money will come from.
Rating agencies Standard & Poor's and Fitch Ratings downgraded Spanish and Italian banks on Tuesday, underscoring concerns about the impact of the escalating debt crisis on the sector.
(Additional reporting by Lisa Twaronite in Tokyo and Umesh Desai in Hong Kong; Editing by Alex Richardson)