Sydney shares fall after RBA decision; Aussie dollar jumps

Australian shares erased gains to fall below the flatline on Tuesday after the Reserve Bank of Australia (RBA) surprised most market watchers by holding back on further easing. Meanwhile, other stock indices in the region traded mixed.

The RBA kept the benchmark lending rate at a historic record low of 2.25 percent, despite expectations it would unveil a back-to-back rate cut to battle weak employment, easing inflation and sluggish corporate profits.

Overnight, U.S. stocks finished higher, with the tech-heavy Nasdaq above the psychologically key level of 5,000 for the first time since March 2000 and the blue-chip Dow Jones Industrial Average and S&P 500 at records as investors cheered U.S. economic data and an interest rate cut in China.

ASX 200
CNBC 100

ASX drops 0.4%

Australia's S&P ASX 200 index trimmed losses to close down modestly, recovering from the RBA-induced disappointment. Meanwhile, the Australian dollar rallied more than half a cent, from $0.7797 to $7819 against the dollar.

The banking sector, which was initially the outperformer for the day, finished lower; Commonwealth Bank of Australia declined 0.7 percent, while Westpac, National Australia Bank and Australia & New Zealand Banking finished modestly lower.

Newcrest Mining was among the hardest-hit, down 4 percent as gold prices came under pressure, while big miners like BHP Billiton and Rio Tinto shed over 1 percent each.

On the domestic data front, Australia's government spending for consumption rose 0.3 percent in the final quarter of 2014 to an inflation-adjusted A$70.3 billion, according to data by the Australian Bureau of Statistics released early Tuesday. Building approvals in January, meanwhile, rose 7.9 percent.

Shanghai Comp falls 2.2%

Chinese shares plunged as a surprise interest rate cut by the central bank over the weekend failed to sustain gains in the market. The Shanghai Composite index had a lukewarm response to the news on Monday, settling 0.8 percent higher after wavering between gains and losses.

Further damping sentiment was news that 24 Chinese companies won regulatory approval for listings, sparking worries over tighter liquidity.

Among top losers, China State Construction slumped 2.5 percent while Agricultural Bank of China tanked 3.3 percent. Other banking majors were also significantly lower; China Construction Bank led declines with a slump of nearly 4 percent, while Bank of China and Bank of Communications fell over 3 percent each.

Meanwhile, markets may be focusing on the country's top political advisory body - the Chinese People's Political Consultative Conference (CPPCC) - which convenes today in Beijing, just ahead of the country's annual National People's Congress on Thursday.

Nikkei flat

Japan's Nikkei 225 index reversed gains to drift further away from Monday's 15-year high as the dollar-yen retreated back into the 119 territory.

Embattled electronics firm Sharp is in focus following news that it plans to seek aid from lenders and reorganize its domestic operations. Shares of the Osaka-based Japanese firm halved losses to 3.5 percent late Tuesday, but still outpacing other electronic firms, such as Panasonic, which made losses of 0.7 percent.

Retailing giant Fast Retailing receded 1.7 percent ahead of the release of its February sales figures, while fellow index heavyweight Softbank fell 1.9 percent.

Read MoreTime to get bullish on emerging markets

Kospi gains 0.2%

South Korea's Kospi index settled at a new five-month high, supported by gains among the automakers.

Hyundai Motor and Kia Motors advanced 3.1 and 2.6 percent each. Samsung Heavy Industries ended down 0.5 percent, losing steam from a rally earlier in the session on the back of news that it won an $618.9 million order from Mitsui OSK Lines.

Meanwhile, global mobile messenger provider Viber said Monday it will appeal a South Korean court ruling that may ban its local operation, signaling a protracted battle with South Korea's top mobile carrier, SK Telecom. Shares of the latter slipped 0.2 percent.

— CNBC's Li Anne Wong, Evelyn Cheng contributed to this report.