On Monday, the S&P 500 sank 2.23 percent — re-entering correction territory and closing below its 200-day moving average for the first time since June 2016. The Nasdaq composite lost 2.74 percent, closing in correction territory for the first time.
Shares of U.S. tech giants, including Facebook, Netflix and Google parent Alphabet, all declined overnight in the first trading session of the month. E-commerce giant Amazon declined after U.S. President Donald Trump criticized the company in a series of tweets.
Investors also digested China's announcement that it was imposing tariffs on 128 kinds of U.S. products, beginning Monday, in response to U.S. duties on steel and aluminum imports unveiled last month. Beijing said in March that those products had an import value of $3 billion in 2017.
Analysts saw the move as largely measured, although there was concern that retaliation from U.S. trading partners would cause a potential trade war — a negative for global economic growth and corporate profits.
"The question about trade policy is whether it affects second-quarter, third-quarter, fourth-quarter [earnings]. The market really is now discounting earnings growth potential based on potential trade wars," James Norman, head of equity strategy at QS Investors, told CNBC's "Squawk Box."
Others were hopeful that an all-out trade war would ultimately be avoided.
"A tariff 'tit-for-tat' is a lose-lose situation. So it's likely that after this war of nerves, the world's two largest economies will find a middle ground," Hussein Sayed, chief market strategist at Forextime, said in a note.
In corporate news, Australian oil and gas company Santos announced Tuesday that it had received a $10.4 billion takeover proposal from Harbour Energy, Reuters said. Santos stock closed up 16.17 percent.
Elsewhere, South Korea's SK Innovation finished the day down 1.4 percent. Reuters reported that the company said on Monday it intended to sell shares in its SK Lubricants unit as part of a planned initial public offering.
Meanwhile, shares of Kumho Tire surged 29.88 percent after news that the plan to sell a majority stake in the company to Qingdao Doublestar was approved by union workers on Monday.
The dollar index, which tracks the U.S. currency against six peers, stood at 89.932 by 2:45 p.m. HK/SIN, compared to levels around the 90 handle seen in the last session.
Against the yen, the dollar drifted higher but remained a touch below the 106 level. The dollar last traded at 105.99 after slipping against the safe-haven Japanese currency for the third straight session on Monday.
On the economic front, the Reserve Bank of Australia kept the cash rate steady at 1.5 percent on Tuesday, as was widely expected by markets.
— CNBC's Fred Imbert contributed to this report.