Asian shares eased on Monday as a surge in Spanish government bond yields renewed concerns about the euro zone's sovereign debt crisis and undermined investor confidence in riskier assets.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> fell 0.4 percent while Japan's Nikkei average <.N225> opened down 1.2 percent. <.T>
European and U.S. shares fell on Friday, led by the banking sector, pushing U.S. indices to their biggest two-week percentage drops since late November. The Dow Jones industrial average <.DJI> and the S&P 500 <.SPX> each fell 2.7 percent for the two weeks from March 30.
Spain's government bond yields jumped on Friday and the cost of insuring its debt against default soared as record borrowing by its banks from the European Central Bank highlighted fears about the country's finances.
The country faces a test of investor confidence this week with an auction of two- and 10-year bonds on Thursday.
Europe's sovereign problem continues to be a concern, said Hiroichi Nishi, equity general manager at SMBC Nikko Securities.
Investor sentiment has also been hurt by worries about slackening demand from China, after the world's second largest economy reported that annual economic growth eased to 8.1 percent in the first quarter from 8.9 percent in the previous quarter - the weakest pace in nearly three years.
However, a move by China on Saturday to double the size of the yuan's trading band against the dollar was seen by investors as a strong signal that Beijing is comfortable with economic growth and believes it has avoided a hard landing.
Analysts said that while the immediate impact from the reform was muted, currencies with high sensitivity to moves in the yuan, including the Australian dollar and the Korean won, will likely face rising volatility over the longer term when the yuan actually trades within the wider band.
The euro eased 0.2 percent and hit a one-week low of $1.3041 on Monday.
U.S. crude futures extended losses, falling 0.4 percent to $102.44 a barrel. Data showed speculators cut their net long positions in U.S. crude oil futures and options in the week to April 10 to the lowest level since December.
Market focus is firmly back on the EUR, Barclays Capital analysts said in a research note. Concerns about Spain have lingered and the market may be responding to any perceived lack of support for the periphery.
Italian Prime Minister Mario Monti's unelected government will seek to pass new measures this week to foster growth and press its reform agenda, the country's industry minister said on Sunday.
Investors will also keep an eye on a weekend meeting of the International Monetary Fund, where tensions have risen over a plan to raise new resources for the IMF to contain the euro zone debt crisis, and a quest by emerging economies to win more say in the global lender.
In the United States, about 86 companies in the S&P's 500 are expected to post quarterly earnings results this week, according to the Thomson Reuters Director's Report. Of the 32 companies in the S&P 500 that have reported earnings so far, Thomson Reuters data showed that 75 percent have beaten Wall Street's expectations.
Reflecting investor nervousness, fund groups specializing in riskier asset classes struggled during the second week of April, EPFR Global said. EPFR Global-tracked High Yield Bond Funds saw an 18 week inflow streak come to an end with an outflow of $1.4 billion.
Asian credit markets were cautious, with the spread on the iTraxx Asia ex-Japan investment-grade index widening a tad by 1 basis point.
(Additional reporting by Mari Saito in Tokyo; Editing by Richard Pullin)