Asian stocks suffered their biggest loss in 10 weeks on Monday after U.S. regulators filed fraud charges against Goldman Sachs and China clamped down harder on property speculation, giving investors an excuse to take profits after markets had rallied to multi-month highs.
The pull-back in equities was matched by a decline in commodity prices, while benefiting assets deemed to be less risky. Government bond prices, the yen and the U.S. dollar all rose.
The sell-off looked set to carry over into Europe, with financial spreadbetters expecting Britain's FTSE 100 <.FTSE>, Germany's DAX <.GDAXI> and France's CAC 40 <.FCHI> to open as much as 0.7 percent.
Yet some investors and analysts thought Monday's shift was only temporary, given expectations that stocks and commodities were due for a pull back anyway after recent rallies.
I don't see this as a beginning of a bear market, said Bratin Sanyal, head of Asian equities with ING Asset Management in Hong Kong. The market has gone up so strongly, a bit of a correction was overdue.
But Sanyal, who manages $2.5 billion worth of assets in Asia outside Japan, said that did not mean Asian equities would necessarily grind higher from here.
Asian stocks are already priced for firms to deliver strong profits as the world economy heals. So they may drift sideways as investors wait for those earnings to materialize. For instance, Japan's earnings season moves into high gear next week.
The fraud charges against Goldman weighed on regional bank stocks even though most Asian banks were nowhere near as active as their U.S. peers in the subprime mortgage business.
The MSCI index of Asian stocks outside Japan shed 2.1 percent, its sharpest daily loss since Feb 5, and retreating further from a 22-month high hit on Thursday.
In Tokyo, the Nikkei <.N225> was down 1.7 percent after breaching its closely-watched 25-day moving average.
Top Japanese bank Mitsubishi UFJ Financial Group <8306.T> fell 3.1 percent, while Mizuho Financial Group <8411.T> lost 2.7 percent.
Airline and tourism stocks also fell as flights to Europe remained grounded due to a volcanic ash cloud from Iceland.
Japan's major travel agency Kinki Nippon Tourist Co Ltd <9726.T> lost 6.1 percent, and All Nippon Airways Co <9202.T> fell 2.4 percent. Singapore Airlines , the world's second-largest carrier by market value, shed 3.6 percent.
Shanghai stocks <.SSEC> fell 4.6 percent to just below 3,000 points and Hong Kong's Hang Seng index <.HSI> shed 2.3 percent after Beijing announced fresh steps over the weekend to rein in property speculation, which policymakers fear could lead to a destabilizing asset bubble.
Property developers and banks were hardest hit. China Vanke <000002.SZ>, China's second-biggest home builder, skidded 6 percent, while Minsheng Bank <600016.SS>, the most actively traded stock on the Shanghai Stock Exchange, dropped 5.1 percent.
But traders said further declines would be limited in the near term, predicting firm support for the Shanghai index at the psychologically important 3,000-point level.
Both the property clampdown and Goldman news are short-term factors, while a full recovery of China's economy is still on the cards, preventing the market from falling too much, said Zheng Waigang, head of investment at Shanghai Securities.
Worries that China may tighten policy too aggressively to keep the economy from overheating have weighed on Chinese and global stocks off-and-on all year.
The Shanghai stock index is down 7.8 percent this year.
Yet, data from Thomson Reuters' Starmine Professional show Chinese stocks are still the priciest in Asia, with a price to forward earnings of 15.7 times. Japan trades at 9.6 times.
Oil sank nearly 2 percent to a three-week low of below $82 a barre.
Copper, which struck 20-month highs last week, also fell, though analysts said losses merely reflected softer share prices and did not reflect the outlook for metal demand.
The retreat in equities markets boosted interest in safe-haven government bonds. U.S. Treasuries edged up and five-year Japanese yields fell below 0.5 percent to a one-month low.
Yields for government debt in Asian emerging markets, deemed riskier than their developed market peers, rose as investors use the chance to take profits after recent price rallies.
The yen, a poster child for safe currencies, rose as far as a one-month high of 91.85, up 0.3 percent from late trade in New York on Friday.
The U.S. dollar <.DXY> also got a boost, rising 0.4 percent against a basket of major currencies, as investors retreated into the safety of its liquidity.
The euro was soft $1.3458. For the first time in weeks, Greece's debt woes were not the focal talking point in the market.
With a trip to Greece by European and IMF officials delayed by the volcanic ash cloud, no major updates were expected before Wednesday on whether Athens will be forced to ask for aid.
However, Greece will face a key test on Tuesday as it tries to raise 1.5 billion euros via an auction of T-bills.
(Additional reporting by Lu Jianxin, Jason Subler in SHANGHAI)
(Reporting by Koh Gui Qing; Editing by Kim Coghill)