Asian shares pulled back on Wednesday after revived worries about the health of U.S. banks slammed Wall Street, even as upbeat Australian growth figures reassured investors on the economic recovery's staying power.
European shares were set for a weaker start, with futures on the Dow Jones Eurostoxx 50 down 0.2 percent in early trade. Futures on the S&P 500 were up slightly.
Japan's Nikkei average <.N225> led losses with a drop of 2.4 percent after a slide in financial shares hit U.S. indexes, while an overnight tumble in oil prices took a toll on resource-related shares such as oil-and-gas developer Inpex <1605.T>.
The slide has spooked some market players since September is a historically poor one for shares and it comes just as many investors return from holidays.
Given that the one-year anniversary of the Lehman Brothers failure is approaching, investors are especially easy to spook about financial shares. The whole sector is very sensitive to bad news, said Noritsugu Hirakawa, a strategist at Oksasan Securities in Tokyo.
Certainly indicators in various nations have been improving, but the fact that markets have been falling despite this suggests that a bit of downward adjustment may be in the offing.
Some of Tuesday's sharp moves partially reversed as markets settled down.
U.S. crude oil prices rose 53 cents a barrel to $68.58, having slid nearly 3 percent the previous day. The Australian dollar climbed nearly 1 percent to $0.8335, bouncing back from its biggest one-day drop since June.
The Aussie got a boost after data showed Australian second-quarter GDP rose a surprisingly strong 0.6 percent from the previous quarter, reviving expectations for the country's central bank to start raising policy rates from the current 3 percent as soon as November.
Manufacturing surveys from around the world on Tuesday provided more evidence that the global recovery accelerated in August. JPMorgan's global gauge of factory activity showed growth returning for the first time in 15 months.
The Reserve Bank of Australia is poised to be the first among major central banks to start raising rates and normalizing the extremely loose policies around the world that were aimed at reviving the global economy from the worst recession in decades.
The Australian dollar took a hit the previous day after the RBA declined to adopt an outright bias toward a tighter policy at a regular meeting, even as the central bank highlighted the economy's strength.
In other positive news, South Korea finance minister said the economy grew at the strongest pace in 5- years in the second quarter, faster than expected, and Fitch Ratings lifted the outlook on the country's credit rating to stable from negative.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> shed 1.3 percent, pressured by a 2.2 percent drop in the S&P 500 <.SPX> on Tuesday. Despite the strong GDP figure, Australian shares <.AXJO> lost 1.8 percent, hobbled by the losses across the region.
Material and financial shares were the biggest drag on the MSCI benchmark for Asia, which is still up some 46 percent this year and near an 11-month high struck in August.
Some traders cited talk of trouble at U.S. hedge fund Cerberus Capital Management as behind the slump in financial shares. Cerberus dismissed the speculation.
Another hit came after Sanford C. Bernstein downgraded American International Group
Others said the chatter about trouble at U.S. financial institutions provided an excuse for some players to take profits on banking shares, which have driven the rally since early March. Since the MSCI Asia ex-Japan began its surge six months ago, the sub-index of financial stocks <.MIAPJFN00PUS> has soared 88 percent.
Helping limit losses in Asia, the Shanghai Composite index <.SSEC> edged up 0.9 percent, helped by gains in Sinopec and PetroChina after China hiked fuel prices to a near-record high.
PetroChina <601857.SS>, the Shanghai Composite's most heavily weighted stock, gained 1.56 percent but its Hong Kong-listed shares <0857.HK> dipped 1.3 percent.
The Shanghai index was up for a second day running and seemed to regain its composure after a nearly 7 percent sell-off on Monday.
Worries about Chinese banks clamping down on lending after a splurge earlier in the year to support government stimulus plans have spooked the market. But analysts have warned investors not to read too much into the opaque and volatile market mostly closed to foreigners.
In currencies, the dollar was little changed after jumping the previous day as the Aussie and euro fell back on the slide in riskier assets.
The dollar index, a gauge of its performance against six major currencies, dipped 0.1 percent to 78.660 <.DXY>.
But against the yen, the dollar dipped as far as 92.51 yen, a seven-week low, as the Japanese currency posted broad gains from renewed worries about holding risky positions in higher-yielding currencies.
Government bond markets extended their winning streak, one of the signals that has worried some investors by suggesting the stock market rebound may be overdone.
The yield on five-year Japanese government bonds fell 2 basis points to 0.580 percent, a four-year low and 175 basis points below comparable U.S. Treasury yields.
Japan's low bond yields underscored how the Bank of Japan is expected to keep interest rates ultra-low for a long time as it battles against a record pace of deflation in the economy.
(Additional reporting by Elaine Lies in Tokyo)
(Editing by Kim Coghill)