Asian stocks fell Tuesday in a sobering realization the U.S. takeover of Fannie Mae and Freddie Mac has addressed some risks stemming from the financial crisis but has not solved it. Japan, South Korea and Australia all finished over 1 percent lower.
Large bank shares such as Mitsubishi UFJ Financial Group underperformed the rest of the market after a broad global financial sector rally on Monday, while currencies association with safety and stability such as the yen and Swiss franc strengthened.
The U.S. dollar pushed to a one-year high against a basket of currencies, while knocking the yen lower, as the bailout encouraged investors to back risky carry trades. The surging dollar and equities pushed commodity prices such as gold and metals lower.
Oil prices fell back towards $105 a barrel, a five-month low, resuming a near two-week slide as a resurgent U.S. dollar drove investors away from commodities and OPEC appeared set to sit tight on production policy.
Japan's Nikkei 225 Average fell 1.8 percent, a day after the U.S. government's bailout of top mortgage firms sparked a broad market rally, with exporters sliding on a firmer yen and uncertainty over the global economy. Shippers such as Kawasaki Kisen Kaisha dragged the market lower after a key freight index fell to its lowest point in more than a year, while bank shares dropped after posting double-digit percentage gains on Monday. But shares of Acom jumped over 13 percent after Mitsubishi UFJ Financial Group offered to buy up to 38 million Acom shares, or 24 percent of Acom's outstanding shares, raising its stake in the consumer finance firm to 40 percent from 16 percent.
Seoul shares extended losses to fall 1.5 percent after gaining more than 5 percent in the previous session, with falls led by technology exporters that had posted the biggest gains on Monday. Hynix Semiconductor closed down 6.53 percent and Samsung Electronics fell 1.29 percent.
Australian shares closed down 1.7 percent as the effect of the bailout of two U.S. mortgage lenders that had driven shares up the previous day waned, and concerns over the health of the U.S. economy returned. Macquarie Group led the declines, losing 7 percent.
Hong Kong shares gave up 1.5 percent after gaining the most in nearly six months in the previous session, as Chinese banks slid on a Goldman Sachs downgrade of the sector. China Construction Bank and Bank of Communications were both sharply lower.
Singapore's Straits Times Index was 0.8 percent lower with financials leading the declines.
China's Shanghai Composite Index moved into positive territory. Most Chinese stocks rose, recovering slightly from sharp drops on Monday, but turnover was tiny and heavyweight oil
shares continued to drag down the main index. Oil refining giant Sinopec was down heavily.
Meanwhile Thailand's stock exchange closed lower by 0.3 percent as the country endured more political uncertainty. Prime Minister Samak Sundaravej was ousted by a court ruling for appearing on a cooking show.