The dollar rose on Tuesday as U.S. data showed factories running at their fastest pace in nearly six years, but stocks gains were reined in by worries about Greece's bailout and China's policy tightening.
Asian shares were slightly lower and European equities are also expected to open almost flat after Wall Street-inspired gains on Monday.
Markets appear to have brushed aside Wall Street's better performance, said Lorraine Tan, director of Asia equity research at Standard & Poor's Ratings Services.
Greece is still a worry, people are wary that these things will come back to haunt us, she said.
I also think the markets are worried about the potential China rate rise, and also the idea that things will slow down in stocks, so its a liquidity issue here.
The dollar rose to an 8-½ month high against the yen, and strengthened against a basket of major currencies, after the construction and factory data showed the U.S. economy was on the mend, raising investor expectations of an interest rate rise this year.
The MSCI index of Asian shares outside Japan initially rose reacting to the U.S. data and gains on Wall Street, but later pulled back, falling 0.5 percent <.MIAPJ0000PUS> in afternoon trade.
China's key stock index <.SSEC> was trading 1.5 percent lower, its first session after a long weekend break during which the central bank said it would raise bank reserve requirement rations to fend off property and consumer price inflation.
The increase, the third this year, is seen as delaying an official increase in interest rates.
Data from the United States, the largest export market for Asia, helped Hyundai Motor <005380.KS> scale an all-time high after the car manufacturer posted record U.S. sales.
But South Korea's main stock index erased earlier gains to close 0.1 percent down, weighed down by disappointing company results and profit-taking.
In Australia, shares surrendered early gains to finish down 1 percent at a two-month low <.AXJO>, with the resource sector battered for a second day on prospective tax changes and Tuesday's hike in interest rates weighing on investors.
However, the Reserve Bank of Australia signaled the first stage of its tightening cycle was over after six hikes in eight months, sending the Australian dollar lower.
Thailand was one bright spot in Asia, with the benchmark index <.SETI> jumping 4.5 percent, with investors eyeing a possible resolution to anti-government protests after Prime Minister Abhisit Vejjajiva proposed holding November elections.
Greece's 110 billion euro ($146.5 billion) bailout, the biggest ever for a single country, eased fears of a near-term sovereign debt default, but analysts predicted it will continue to weigh down equity markets, and the euro, which huddled near one-year lows.
The Greece issue will be around for a while, it will certainly put a damper on sentiment, said Daniel McCormack, Asia equity strategist, Macquarie Securities.
The sovereign risk issue is driving a lot of moves in global equity markets, and there are fears that this will get worse.
Doubts remain whether Greece will be able to carry out the tough austerity measures it promised, the package still needs parliamentary approvals and leaves open the question of whether other vulnerable European countries might also need help.
In energy and commodities trading, the strong U.S. dollar drove safe-haven gold lower after it hit its highest price this year overnight. Spot gold was quoted at $1,180 an ounce versus Monday's notional close of $1,83.30.