Asian shares eased on Tuesday as investors waited for Federal Reserve Chairman Ben Bernanke to clarify the U.S. central bank's plans for its stimulus programme - with the mere suggestion of fine-tuning it enough to unnerve market sentiment.
European stocks are seen easing, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX will open down as much as 0.3 percent. U.S. stock futures traded almost flat, hinting at a subdued Wall Street start after a rise overnight.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.2 percent, with Chinese and Australian bourses leading the declines. The materials sector in the pan-Asian index was the top loser.
Australian shares faced selling in high-yielding stocks while Hong Kong shares slipped 0.5 percent after two days of gains with investors selling recent outperformers. Shanghai shares also struggled to gain as the People's Bank of China again refrained from injecting funds into the interbank market despite short-term funding costs staying high.
South Korean shares bucked the trend and rose 0.9 percent while Southeast Asian shares were also mostly higher.
The Fed's bond-buying programme, along with very accommodative monetary policies by other central banks to promote growth, such as the Bank of Japan, has underpinned market sentiment broadly, providing investors abundant funds they could put to work in higher-yielding "risk" assets, such as shares.
"The Federal Reserve has really been driving the top-down investment themes globally with quantitative easing and record low U.S. rates," said Peter Esho, investment adviser at Wilson HTM. "It has implications really into all other asset classes."
Market volatility was likely to remain elevated until the outcome of the Fed meeting and Bernanke's news conference on Wednesday.
"The sensitivity of asset prices to headlines and seemingly inconsistent moves among them - U.S. Treasury yields moving higher but the U.S. dollar coming under pressure...shows the degree of nervousness and confusion among investors regarding the most likely path of the Fed's monetary policy," Barclays Capital said in a research note.
DOLLAR OUTLOOK MIXED
Japan's benchmark Nikkei stock average gave up early gains and fell 0.2 percent, swinging from Monday's 2.7 percent rise.
The dollar rose 0.3 percent against the yen to 94.78, off its 10-week low of 93.75 yen hit on Thursday, but well below last month's 4-1/2-year peak of 103.74 yen. Against a basket of six key currencies, however, the dollar index was down 0.09 percent.
Uncertainty over the Fed's thinking has weighed on the dollar recently, but its fall against the yen has also been linked to speculators and investors cutting back their yen short positions after the Bank of Japan took no action last week to quell a highly volatile domestic bond market.
The sell-off in the Nikkei, sparking yen buying, erased gains made since the central bank's big-bang stimulus unveiled on April 4, which had helped propel the index up to a 5-1/2-year high last month. Growing views that Prime Minister Shinzo Abe may not deliver as aggressive a reform as previously hoped for also led to the unwinding of short-yen and long-Nikkei positions.
"The Fed is likely to stress its commitment to stimulus and signal that any tapering will not mean tightening liquidity, and that should tame recent market jitters and induce stability," said a senior official at a big Japanese investor.
At a meeting of leaders of the Group of Eight developed countries on Monday, the euro zone came under pressure to press on with a banking union and Japan was urged to follow up on massive central bank stimulus with structural reforms and measures to tackle its budget deficit.
The G8 said in a statement world economic prospects remained weak even though downside risks have lessened due partly to policy action taken in the United States, the euro zone and Japan.
Data on Tuesday showed Japan's industrial output rose 0.9 percent in April, showing a steady pickup in firms' productive activity, while Monday's economic reports showed firming recovery in U.S. housing markets.
"In general any decision to taper would signal confidence in the ongoing recovery of the U.S. economy, that is potentially an upside for markets depending on how investors take it."
U.S. crude futures inched up 0.1 percent at $97.85 a barrel and Brent also was up 0.1 percent to $105.55.
Spot gold fell 0.3 percent to $1,380.41 an ounce as muted physical demand and fears of any cut in the Fed's $85 billion monthly bond purchases weighed on sentiment.