Asian stocks slid on Tuesday, snapping a five-day rally as concerns about the health of U.S. banks resurfaced, while expectations that Australian rates would not fall much further kept the Australian dollar steady.
European stock market futures pointed to a higher open, with investors hoping the U.S. results season will not be so dire.
Gloomy comments from high-profile U.S. bank analysts overnight, as well as a dark prognosis on the financial system from billionaire investor George Soros, weighed on Wall Street and supported gold prices.
Adding to unease about the financial sector, the International Monetary Fund is expected to report in coming weeks that U.S. bad assets could climb to as much as $3.1 trillion, far more than the $2.2 trillion the institution had earlier forecast, The Times newspaper reported.
The MSCI index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS> fell 1.25 percent, after briefly touching a six-month high on Monday. The index, now at 264.20, has not been able to clear 270 since October 2008.
In Japan, shares of top bank Mitsubishi UFJ Financial Group <8306.T> were down 1.2 percent and Shinsei Bank <8303.T> was off 4.4 percent.
The Nikkei share average <.N225> slipped 0.3 percent, with weakness in bank stocks winning out over strength in automaker shares, which have continued to gain on hopes General Motors
The global banking system and financial markets are likely to remain on shaky ground, impeding hopes for economic recovery, until the mountain of bad loans, mortgages and financial derivatives is cleared.
The market's stance on banks had been too optimistic recently, said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities in Tokyo. Some large U.S. banks have already passed stress tests, but others haven't, and given that results are coming up soon, this simply reignited investor uncertainty.
Bank stocks were also under fire in Australia, where National Australia Bank
The benchmark S&P/ASX 200 index <.AXJO> fell 1.2 percent after hitting a three-month high on Monday.
Hong Kong's Hang Seng index <.HSI> slid 1.1 percent, led by HSBC stock <0005.HK>, which dropped 1.7 percent.
Even before the comments on banks, stock traders wondered when the market would pause for breath after a 10 percent rally in the last five days pushed a benchmark Asia ex-Japan equities index up against a major technical obstacle on the charts.
RBA CUTS WITH FOCUS ON EMPLOYMENT
Australia's central bank surprised some in the market by cutting rates by a quarter point, disappointing some who had thought recent data warranted a more aggressive move.
The Australian government bond yield curve flattened slightly and the swaps market still reflected expectations of additional easing to 2.25 percent from the current 3 percent, though the pace would be slower than the last eight months, easing some pressure on the currency.
The correct way to interpret the move (by the RBA) is that it is a one-off move reflecting risks employment data weakens from here. I don't see this as being bad news for the Australian dollar right now, said Robert Rennie, currency strategist at Westpac, said in the Reuters Markets Buzz chat room.
The Australian dollar was at $0.7123, nearly unchanged on the day, having gained some 7 cents since February.
The U.S. dollar slipped 0.4 percent to 100.60 yen, after rising above 101.40 yen on Monday, the highest since late October, as equities slid.
The dollar has strengthened by some 12 yen since February, as more investors dump what has been considered relative safety in the yen for higher returns elsewhere.
The relationship has been firmly set that the U.S. dollar strengthens during episodes of risk aversion. Last week's rally in equity markets was certainly of questionable sustainability given it was in part fueled by changes to accounting law, said Ashley Davies, currency strategist with UBS in Singapore in a note.
Gold prices rose 0.9 percent to $877 an ounce in the spot market after hitting a near three-month low on Monday.
U.S. crude for May delivery rose 1 percent to $51.58 a barrel ahead of weekly U.S. inventories data. Oil prices have been tracking rallying equity markets and have gained around $15 since mid February.
The U.S. government bond market continued to be mostly governed by expectations about upcoming supply and whether demand would hold up.
The yield on the U.S. benchmark 10-year note was at 2.91 percent, dipping from 2.94 percent where it ended New York trade.