South Korean and Indian shares fell on Tuesday after Australia's interest rate hike showed that stronger Asian economies were starting to reverse emergency stimulus policies, hitting markets seen as likely to lift rates.
European stock futures were up 0.4 percent while U.S. equity futures were flat.
The dollar jumped across the board, trimming early losses after Saudi and Russian authorities denied a report saying Gulf Arab states were considering using currencies other than the dollar to trade oil.
The euro slipped to around $1.4705 compared with around $1.4730 before the comments. Still, the pair traded 0.4 percent higher on the day, after traders initially sold the dollar in reaction to the report in UK daily The Independent.
The Reserve Bank of Australia's decision to raise interest rates, a surprise to many analysts, sent shivers through Korean financial markets, pushing the benchmark KOSPI index <.KS11> down 0.5 percent, after early gains, while Korean December bond futures fell by as much as 22 ticks to 108.86 within seconds of the rate announcement.
The Australian central bank, said it was prudent to gradually take back policy accommodation since the worst danger for the economy had passed, a move analysts said eased pressure on the Bank of Korea from holding back on raising its own rates to prevent a property bubble forming.
Australia is the first G20 nation to raise rates since markets crashed after the failure of Lehman Brothers. The move puts it ahead of most big developed nations, who show little if any inclination to tighten policy, and sent the Australian dollar to a 14-month high above $0.8860 amid speculation of more increases in coming months.
The Australian economy is outperforming other advanced economies and I guess many economists will see the decision today as a consequence of economic recovery, Australian Treasurer Wayne Swan told reporters.
Australian shares trimmed gains but still ended the day up 0.4 percent as share markets across the region gained some support from a report on Monday showing the U.S. services sector grew last month for the first time in a year, offsetting disappointment over U.S. payrolls data last Friday.
The MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> and the Thomson Reuters index of regional shares <.TRXFLDAXPU> were both up 1 percent.
MAZDA SHARES SURGE
Gold edged up to as high as $1,020.05 an ounce from just above $1,015.
The strengthening yen added to concern in Japan that exporters will suffer as a result although the benchmark Nikkei share index <.N225> inched up 0.2 percent.
Carmaker Mazda Motor <7261.T> jumped 7.6 percent on news of a share sale to raise $1.1 billion for investment in hybrid and other technologies and after it halved its net loss forecast for the year to March.
China's markets are closed until Friday for public holidays but Hong Kong shares were up 0.7 percent.
In Korea, Samsung Electronics <005390.KS>, the world's top maker of memory chips and flat-screen TVs, announced a higher-than-expected third-quarter earnings forecast but its shares erased early gains, dipping 0.3 percent in the market slide. Still, they have rallied nearly 70 percent this year as tech stocks outperformed the market.
Asian currencies were generally firmer as the dollar came under pressure.
The New Zealand dollar, up nearly 50 percent since early March, touched a 14-month high after data showed a rebound in business confidence and the market bet the country could soon follow Australia and raise rates.
The South Korean won hit a one-year high against the U.S. dollar. It and then retreated on suspected intervention by the authorities while a finance ministry official told Reuters the authorities were ready to intervene if the won overshoots fundamentals.
U.S. crude oil futures stayed above US$70 a barrel, inching up to US$70.67. The U.S. services data helped oil and copper prices, which climbed nearly 2 percent to more than $6,000 a ton as the dollar struggled.
(Additional reporting by Anirban Nag and Wayne Cole in SYDNEY; Editing by Jan Dahinten)