Australian stocks on Wednesday retreated from the previous day's four-and-a-half-year high after manufacturing data suggested China's economic recovery may not be on a solid footing, while the Nikkei 225 extended losses on weak earnings reports.
Financial markets across Asia including Seoul, Hong Kong and Shanghai were shut for the May Day holiday and will resume trade Thursday.
The official Chinese Purchasing Managers' Index (PMI) for April fell to 50.6 from March's eleven-month high of 50.9. A key reason for the drop was falling new orders, which reflect negative expectations from companies.
"The Chinese economy is starting to slow down. On the other side, industrial production in Korea was also weaker so economic data overall is starting to weaken," said Kumar Palghat, director of Kapstream Capital.
(Read More: Fall in New Factory Orders to Trigger China Action?)
However, he believes the global liquidity rush will offset any losses stemming from weak data.
"There are 7 or 8 things we were worried about last quarter, including the U.S. sequester, Italian elections, and Cyprus. Each one of these things that we thought would have given equity markets a correction came and went, but you're still getting plenty of stimulus from central banks so that's why equity markets are going up," Palghat said.
Australia Pulls Back
The S&P ASX 200 lost 0.5 percent after news of an unexpected easing in Chinese factory activity while the Australian dollar was little changed at $1.0364 after hitting a two-week high of $1.0386 on Tuesday.
The Chinese data weighed on major resource stocks with global miners Rio Tinto and BHP Billiton tumbling over 1.5 percent each, while gold miner Medusa Mining slumped 6.7 percent. China is Australia's largest export market and any softness in the mainland's economic activity signals slowing demand for Australian miners.
The benchmark's 1 percent rally on Tuesday helped the index post a 4 percent gain for the month of April.
Nikkei Loses 0.4%
Japan's main stock index closed below the 13,800 mark on dismal earnings news from major electronic equipment makers. The Nikkei has lost over 1 percent since hitting a near five-year high of 13,983 last week.
(Read More: Japan's Office Space Is Only Just Heating Up)
Sharp dropped 5 percent after reporting a worse-than-expected $5.1 billion net loss in the year that ended March 31. Meanwhile, electric component manufacturer Alps Electric tanked 9 percent after the company lowered its earnings forecast.
Investors are looking ahead to Thursday's minutes of the recent Bank of Japan meeting for further clues on the direction of monetary policy.
Markets Await Central Banks
The U.S Federal Reserve wraps up its two-day policy meeting later on Wednesday. Focus is on what the central bank says in its policy statement and whether it will ramp up its asset-purchase program in light of recent weaker-than-expected economic data.
Meanwhile, the European Central Bank meets on Thursday and is widely expected to cut interest rates to give the frail euro zone economy a boost.
"The stock-pickers market will be tested over the coming days. It certainly feels like there is a 'calm before the storm' effect at the moment," wrote Evan Lucas, market strategist at IG in a note.
"Macro data has to start showing signs of stabilizing, or central banks have to respond to the data being printed. Without this, a correction is on," he said.