Asian stocks tumbled on Tuesday, after falling commodity prices and a sharp drop on Wall Street spooked investors into taking profits and buying the yen on speculation the rapid pace of recovery may not be sustainable.

Questions about the extent of Chinese restocking of various commodities weighed on base metals prices and oil overnight, with U.S. crude dropping below $67 a barrel, down $6 from an eight-month high reached on June 11.

The U.S. recession was widely viewed as ending sometime in the second half of 2009, but that has already been priced in, leading investors to trim positions into the end of the first half and wait for further confirmation.

Whether demand in oil and commodity markets can move higher from here is a big question mark, said Tony Russell, a senior equities adviser at ABN AMRO Morgans in Australia. We have seen some better news on the economy but we need to see more.

Big liquid markets were sitting targets for investors looking to cut down their exposure to risk.

Japan's Nikkei share average fell 3.1 percent <.N225>, as investors shifted money from stocks that would benefit the most from upward turns in business cycles to defensive sectors.

The MSCI index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> dropped 2.9 percent, falling to the lowest in about a month. The index has declined for six of the last seven trading days.

In the last 20 days, the index has returned 1.2 percent, compared with a decline of 2.3 percent on the all-country world index <.MIWD00000PUS>. Investors continue to place a premium on Asia's growth prospects and its resilience to global weakness.

Hong Kong's Hang Seng index led the region lower, falling 3.8 percent. Index heavy weights HSBC <0005.HK> and China Mobile <0941.HK> were the biggest drags.

The S&P 500 index of U.S. stocks <.SPX> posted its biggest one-day loss in two months, closing below its 200-day moving average for the first time in 15 days.

Though companies will likely keep refilling inventories of materials, prospects for final demand for products are still highly uncertain.

As a result, copper for three-month delivery on the London Metal Exchange fell more than 1 percent to $4,710 a tonne after dropping 5 percent on Monday. Year-to-date copper was still up 53 percent.

U.S. oil for August delivery was down 0.6 percent to $67.09 a barrel, while Brent crude was down 0.7 percent to $66.54.

After the Chicago Board Options Exchange volatility index, better known as the VIX <.VIX> gapped higher for the second time in June last night, knee-jerk demand for yen increased.

The U.S. dollar dropped to the lowest since June 1, at 95.25 yen, down 0.7 percent. The Australian dollar was down 1 percent to 74.64 yen.

Some investors who missed some or all of the big rebound in global equities that began on March 9 and eventually dragged up commodity prices may be looking for an entry point now. As they move out of cash and buy cheapened assets, the late comers may limit the move lower in risky securities.

A lot of institutional money remains on the sidelines and may be put to work in case of market declines, limiting the size of any correction, said Dariusz Kowalczyk, chief investment strategist with SJS Markets in Hong Kong, in a note.

(Additional reporting by Koh Gui Qing in SYDNEY)

(Editing by Kazunori Takada)

Australia Japan Nikkei 225 HSBC