Asian shares and the euro fell on Thursday on concerns about global growth driven by higher oil prices and data showing the euro zone may slip into recession, fanning fresh worries about Greece's debt restructuring challenges.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> slid 0.6 percent, having consolidated from recent rallies after the much-awaited deal for a 130 billion euro Greek bailout was sealed earlier in the week. Sectors sensitive to growth cycles, including technology <.MIAPJIT00PUS> and materials <.MIAPJMT00PUS>, underperformed.
Financial spreadbetters expected major European markets <.FTSE> <.FCHI> <.GDAXI> to open barely changed.
Now that the Greece's second rescue package has been decided and priced into the market, markets are already looking for the next problem, said Yoshihiko Tabei, general manager of capital markets at Kazaka Securities.
And that next problem is Europe's fiscal reform and how those austerity measures will be achieved across the bloc.
Japan's Nikkei average <.N225> bucked the regional trend, reversing course from early falls to gain 0.5 percent, partly supported by a weaker yen, which fell to a seven-month low against the dollar on Wednesday.
Copper eased 0.2 percent to $8,416 a tonne as perceived manufacturing sector weakness in major economies discouraged investors from further buying of industrial metals.
A Reuters poll from Japan on Thursday showed manufacturing sentiment in February slid to its lowest since the aftermath of the March 2011 earthquake, indicating the world's No.3 economy may struggle to recover quickly from a slump on weak global demand and a strong yen.
This followed Wednesday's weak surveys of euro zone purchasing managers, which weighed on U.S. and European shares. The German Ifo business climate survey for February, expected to show sentiment improving slightly, will offer more clues on Europe's economy when it is released at 0900 GMT.
An unexpected drop in Markit's Eurozone Services Purchasing Managers' Index revived fears of the economy sinking into recession and raised doubts over the Greece's ability to revive its economy and push fiscal reforms needed under the just-agreed bailout programme.
Fitch's widely expected downgrade of Greece after a bond swap agreement, added to the negative tone, sparking a sell-off in Greek bank shares on recapitalisation worries.
The euro stood at $1.3256, struggling to break a near two-week high of $1.3293 hit on Tuesday after the Greek deal.
Rising oil prices supported the euro due to reserve managers potentially recycling their dollar revenues into euros, analysts at BNP Paribas wrote in a note, while traders said firmer oil prices boosted dollar demand from Japanese oil importers.
The escalating Iranian nuclear row, which has helped push up oil prices 11 percent this year, also returned to the radar for global investors.
The U.N. nuclear watchdog failed in its latest mission to Iran on Tehran's suspected secret atomic weapons research, raising the risk of confrontation with the West.
U.S. crude futures shed 37 cents to $105.91 a barrel, after settling at a nine-month high, while Brent eased 20 cents to $122.70, after also settling at a nine-month peak.
While the lift in the oil price is in line with a lift in demand, the magnitude of the lift is greater than we would expect suggesting prices are a headwind, ANZ Bank analysts said in a report, adding that they planned to cut assets linked to industrial cycles, such as commodities, and tilt to those seen benefiting from easy policy, such as bonds and corporate credit.
ASIA NOT OVERBOUGHT
Credit Suisse analyst Sakthi Siva said in a report that Asian equities were not yet overbought by foreign investors.
With MSCI Asia ex-Japan already up 15 percent so far this year, a key concern of investors is whether a tactical correction is likely, Siva said.
While net foreign buying in Emerging Asia excluding China has reached $18.5 billion year-to-date, above net foreign selling in all of 2011 of $16 billion, their purchases as a percentage of market capitalisation remained well below a year ago at 0.2 percent compared with 1.6 percent in January 2011 and 2.2 percent in April 2010.
On this measure, Taiwan looked oversold at -0.8 percent of market capitalisation, followed by Korea at 0.2 percent. The Philippines looked the most crowded with net foreign buying at 1.1 percent of market capitalisation and Thailand and India were starting to look overbought, Siva said.
In Asian credit markets, a pause in risk taking pushed spreads on the iTraxx Asia ex-Japan investment-grade index wider by 4 basis points early on Thursday.
(Additional reporting by Ian Chua in Sydney and Mari Saito in Tokyo; Editing by Alex Richardson)