Asian shares fell on Wednesday in low volume with many market players away for year-end holidays, while oil held on to the previous day's gains on concerns about possible supply disruptions after Iran threatened to stop the flow of oil from the Gulf.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.9 percent, keeping it on track for a 2011 loss of 18 percent, underperforming a 12 percent decline in European shares and a 9 percent drop in world stocks.
The pan-Asian index was dragged lower by a 1.3 percent drop in Australian shares, hit by falling gold and copper prices in extremely thin trading. Investors cutting risk before the year-end led Hong Kong and China shares down as turnovers neared year lows.
European markets were likely to open lower, with financial spreadbetters expecting London's FTSE to start barely changed but Frankfurt's DAX and Paris' CAC-40 to begin down 0.2 and 0.4 percent respectively.
Japan's Nikkei stock average ended down 0.2 percent in light trading, on track for a 17.6 percent drop this year.
More people want to bring their positions to neutral ahead of the New Year holidays than look for bargain hunting, and that's keeping prices depressed in low volumes, said Tetsuro Ii, the president of Commons Asset Management in Tokyo.
U.S. crude oil steadied around $101.30 a barrel, after surging more than $2 to $101.77 on Tuesday on concerns over possible supply disruptions from the Middle East.
Iran threatened to cut off a key oil shipping route through the Strait of Hormuz if foreign sanctions are imposed on its oil exports.
The only way Iran would actually close Hormuz is when it is attacked and war breaks, but such a possibility appears low as no country would want to take the risk when growth worldwide was likely to slow down, said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory Co.
But he added the Iran issue will be a major source of volatility in 2012 along with the euro zone debt crisis. He expects U.S. crude futures to trade between $95-$100 and Brent to trade between $105-$110 in 2012.
Aside from oil, the impact to financial markets was limited.
The dollar index, measured against a basket of six major currencies, was nearly flat at 79.830.
The euro stood at $1.3067, holding above its 11-month trough of $1.2945 hit earlier this month. But it remained vulnerable ahead of Italy's debt sale on Thursday.
The Italian debt sale of up to 8.5 billion euros (7.1 billion pounds) of debt will provide a gauge of investor appetite. Italy faces around 100 billion euros in bond redemptions and coupon payments between January and April.
The direction of yields on highly-indebted euro zone sovereigns will remain a market focus in 2012, as a soaring public financing burden threaten to hurt growth and further derail fiscal reforms.
COMMODITIES SEEN SUPPORTED
In the United States, more data emerged to support views the economy was on track for moderate recovery, with improving labour market conditions lifting U.S. consumer confidence to an eight-month high in December. Other data, however, showed U.S. single-family home prices fell more than expected in October, suggesting recovery was still far from being on a solid footing.
Europe must clear several hurdles including government bond auctions and implementing a bailout program before regaining market confidence about its ability to contain the debt crisis.
Once the prospect of resolving the debt crisis becomes clear, it would help improve economic fundamentals in the U.S. and China and boost risk appetite.
While global economies remain on shaky ground, policymakers will likely maintain accommodative monetary conditions next year to spur growth, lending support to commodities, analysts say.
The trend for including commodities in asset allocations will remain intact next year, as you cannot remove resources-related assets from your portfolios, said Ii of Commons Asset Management.
The 19-commodity Reuters-Jefferies CRB index -- largely influenced by U.S. crude oil -- was set for a 7 percent drop in 2011, faring slightly better than equities.
U.S. crude oil was among the best performers this year with a 10 percent increase, while gold gained 12 percent as a loss of confidence in key currencies such as the euro accelerated flight to bullion, traditionally seen as a safe-haven.
Niimura at Risk Advisory expects three-month copper on the London Metal Exchange to trade between $8,000-$8,500 a tonne and gold to average $1,800 an ounce in 2012.
(Editing by Ramya Venugopal)