Asian shares and commodities fell Tuesday, after a shock announcement that Greece will hold a referendum on a new EU bailout deal for the debt-ridden country threw efforts to resolve the euro zone's debt crisis into fresh doubt.
A retreat from riskier assets boosted the dollar, although it slipped from Monday's three-month peak against the yen that followed Japan's record one-day currency market intervention estimated by local media at as much as 10 trillion yen ($128 billion).
The euro came under renewed pressure amid growing doubts about the effective implementation of a plan agreed just last week to contain Europe's debt crisis, while European stock markets were expected to fall.
The single currency has given up all of the gains made in a run to as high as $1.4247 last Thursday after the debt deal was announced.
Greek Prime Minister George Papandreou's decision to call a referendum could result in a snap election if the public, angry with harsh austerity measures, rejects the deal, and possibly trigger a default, analysts said.
Investors fear the Greek move could undermine Europe's efforts to stop its sovereign debt woes from spreading, just when jitteriness has put Italian bonds under renewed pressure, with 10-year yields rising back above 6 percent.
Financial bookmakers in London called the FTSE 100 index <.FTSE> to open down 1.1 percent, while Germany's DAX <.GDAXI> was seen down 1.2 percent and France's CAC-40 .FCHI down 1.1 percent.
RIPE FOR PROFIT-TAKING
MSCI's broadest index of Asia Pacific shares outside Japan fell 1.6 percent on Tuesday, after its best monthly gain since May of more than 12 percent in October, helped by last week's huge rally on a long-awaited European rescue plan.
Japan's Nikkei <.N225> share average closed down 1.7 percent.
Traders said Asian stocks were generally ripe for profit-taking after a sharp rally last week on relief that European leaders had at least come to an agreement on a basic framework to help reduce Greece's huge debts, boost the region's bailout fund and strengthen banks.
A slightly weaker-than-expected pick-up in China's factory activity as shown by the official purchasing managers' index (PMI), which fell to 50.4 in October from September's 51.2, provided another excuse for selling, sending Hong Kong's benchmark Hang Seng index <.HSI> down 1.9 percent.
China's factory activity in October was its slowest since February 2009, reminding investors of the risks to the world's No. 2 economy from sagging global growth.
The data sent the risk-sensitive Australian dollar and the euro lower as well, but gold, perceived as a safe haven asset, was underpinned as other riskier assets slid.
The China data was disappointing, but it shows growth is continuing, although at a lower rate than previously expected, said Adrian Foster, head of financial markets research for Asia-Pacific at Rabobank International in Hong Kong.
Australian shares fell <.AXJ0> 1.5 percent and the currency fell 0.9 percent after the Reserve Bank of Australia cut its main cash rate by 25 basis points to 4.5 percent, the first easing since early 2009, as it reacted to benign inflation at home and downside risks to global economic growth.
The concerns in Europe are having a negative impact on the global economy which in turn is impacting Australia, particularly through a drop in confidence. The RBA has taken this into account, said Glenn Baker, CFO at ING Direct.
The MSCI world equity index dropped 2.4 percent on Monday, pulling back from its highest levels in nearly three months hit last week, but gained 10 percent in October for its biggest one-month rise since April 2009.
U.S. stocks fell as the spike in the U.S. dollar weighed on commodity prices, sending the Standard & Poor's 500 Index .SPX down 2.5 percent on Monday. Despite the losses, it posted its biggest monthly percentage rise since December 1991.
The euro slipped about 0.3 percent on Tuesday to around $1.3820, while the dollar index .DXY, which measures the U.S. currency against a basket of six major peers, rose 0.6 percent.
The firmer dollar helped trim earlier gains in gold, which was up 0.2 percent on Tuesday after losing nearly 1 percent the day before, while oil slipped.
Asian credit markets weakened on Tuesday, as renewed worries about Europe and rising Italian bond yields led to a sharp widening of the spreads on the iTraxx Asia ex-Japan investment grade index, a gauge for whether investor risk appetite is returning. The spread widened by 12 basis points from Monday.
(Additional reporting by Ian Chua in Sydney; Editing by Alex Richardson)