Japan's stocks led falls across Asia on Tuesday, posting their biggest drop in nearly 10 months, after another day of drama on oil markets that drove US crude to less than $50 a barrel for the first time since the first half of 2009 handed Wall Street its worst losses in three months, BBC reported.
Some of Europe's major exchanges recovered to trade in positive territory after a rough start, but London's oil- and gas-heavy FTSE was still down more than half a percent, dragging Europe-wide indices into the red.
US stocks futures, however, pointed to a slightly higher opening on Wall Street.
"Global risk sentiment has been hurt by sliding stocks and oil prices. That is leading to a perception that there is a lack of demand - and that has implications for global growth," said Jeremy Stretch, head of currency strategy at CIBC World Markets.
Nikkei Falls
Japan's Nikkei dropped 3 percent, its largest fall in almost 10 months, while South Korean shares fell 1.7 percent to a one-and-a-half-year low. Even high-flying mainland Chinese shares pulled back after hitting 5-1/2-year highs earlier in the session. MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.4 percent.
The rout in oil markets has resumed strongly since a Christmas lull, prices plunging by as much as 6 percent on Monday and by another 1.8 percent on Tuesday.
A slew of factors were maintaining the downward pressure on prices, analysts said, pointing to concerns about the Greek economy, high oil output from Russia, Iraq and the United States, and a stronger dollar.
"Falls in oil prices are going beyond many people's expectations. This will put pressure on the earnings of US energy firms," said Hirokazu Kabeya, senior strategist at Daiwa Securities in Tokyo.
Hit by the drop in US 10-year yields and the general concern over global growth that it reflects, the dollar fell by more than half a percent against the yen to as low as 118.65 yen before recovering.
Against a basket of currencies, the US currency continued to gain. The euro fell by a third of a percent to $1.1891, just off Monday's 9-year lows.
"I would be a bit cautious about extrapolating too much so early in the year," said CIBC's Stretch. "This dip in risk appetite is likely to be temporary, and we should see the dollar recover against the yen and expect the euro to head lower."
China Shares Recover
Chinese shares recovered earlier losses after a private survey showed the country's services sector grew at its fastest pace in three months in December.
The Shanghai Composite ended up closing flat at 3,351.45 after falling as much as 1.3% earlier Tuesday. In Hong Kong, the benchmark Hang Seng index finished down 1% to 23,485.41, following the global trend.
In Australia, investors also reacted to falling oil prices and eurozone worries, with the benchmark S&P/ASX 200 closing down 1.57% at 5,364.80 points. Earlier in the day, the index was down as much as 1.9% - one of its biggest falls in more than a month.
One company's shares saw a positive reaction to falling oil prices, however, with Qantas, Australia's national airline, seeing its share price at a four-year high during the Tuesday session.
Australia's latest trade figures showed the country's deficit widening in November from October to about 950m Australian dollars ($770m). It is the eighth trade deficit in a row.
But analysts said investors largely ignored the numbers, which were smaller than expected and due in part to falling prices for resources such as iron ore.
In South Korea, the benchmark Kospi closed down 1.74% to 1,882.45 points, with shares in energy firms leading the declines on oil price worries.
