Asian stocks stabilize after selloff; Fed meeting watched

Asian equity markets stabilized on Tuesday following two straight sessions of sharp losses but caution prevailed ahead of a Federal Reserve meeting.

Emerging market currencies and stocks saw heavy selling abate as the U.S. central bank starts a two-day policy meeting later in the day, chairman Ben Bernanke's final meeting before Janet Yellen takes on the role. Most analysts expect another $10 billion reduction in its monthly bond-purchase program.

"While it makes sense to be cautious about emerging market shares generally, a re-run of the 1997- 98 Asian crisis is unlikely and emerging markets are unlikely to pose a major threat to global economic recovery," wrote Shane Oliver, head of investment strategy and chief economist at AMP Capital, in a note.

(Read more: Will the Fed throw emerging markets a bone?)

TICKER	COMPANY	NAME	PRICE	CHANGE	%CHANGE
.N225	Nikkei 225 Index	NIKKEI	38,646.11	-457.11	-1.17%
.HSI	Hang Seng Index	HSI	18,608.94	-259.77	-1.38%
.AXJO	S&P/ASX 200	ASX 200	7,727.60	-84.20	-1.08%
.SSEC	Shanghai	SHANGHAI	3,088.87	-27.52	-0.88%
.KS11	KOSPI Index	KOSPI	2,687.60	-34.21	-1.26%
.FTFCNBCA	CNBC 100 ASIA IDX	CNBC 100	9,696.14	-82.99	-0.85%

Emerging markets steady

Indonesia's Jakarta Composite rose 0.44 percent after shedding 3 percent in the previous session and Thailand's SET index dipped 1.3 percent following Monday's 2 percent fall.

Indian shares reversed gains to fall 0.12 percent after the Reserve Bank of India unexpectedly raised its repo rate by 25 basis points to 8 percent. Reuters economists had expected no change in rates.

(Read more: Are rate hikes on the cards for emerging markets?)

In the currency space, the Indonesian rupiah hovered near Monday's two-week low while the , and strengthened. The rebounded nearly 1 percent as markets anticipate a rate hike when the central bank announces the outcome of its emergency policy meeting around 8pm SIN/HK.

Nikkei slips 0.2%

Japan's benchmark index bounced between gains and losses in choppy trade but still managed to move off Monday's two-month low as investors took relief from a weaker currency.

The yen last traded at 102.7 per dollar, well off the previous day's seven-week high of 101.7, boosting blue-chip exporters. Index heavyweight Fast Retailing rose over 1 percent while blue-chip exporters Panasonic and Komatsu also added 1 percent each.

Apple suppliers were dealt a blow after shares of the U.S. tech giant dropped nearly 6 percent in after-hours trade despite upbeat earnings. TDK Corp lost over 5 percent while Daishinku fell 2.5 percent.

(Read more: Nikkei'srout – Is it a signal to buy?)

Shanghai up 0.2%

Mainland shares rebounded following Monday's 1 percent decline after the People's Bank of China (PBOC) injected funds into interbank markets, soothing fears over a new liquidity crunch. On Monday, reports that the PBOC halted bank cash transfers ahead of the upcoming Lunar New Years holiday sparked fears of a nation-wide cash shortage.

Shanxi Coal Industry surged 25 percent in its stock market debut, the biggest mainland listing since the initial public offering market was re-opened last month.

Investors also digested data that showed Chinese industrial profit growth slowed in 2013. Profits rose an annual 6 percent in December, slower than November's 9.7 percent.

In Hong Kong, Lenovo surged as much as 6 percent after research firm IDC ranked the firm fifth-largest in the global smartphone market.

(Read more: Global smartphone makers closing in on Apple)

Sydney 1.3% lower

Australia's benchmark index closed at a one-and-a-half-month low as it played catch-up with the region following Monday's holiday. Sentiment was unable to get a boost even after the National Australia Bank's business confidence survey rose to a two-and-a-half-year high, which sent the Australian dollar closer to $0.88 U.S. cents.

Gold miners were among the top losers as gold prices were little changed after Monda's 1 percent fall. Kingsgate fell 5 percent while Alacer Gold lost 4.6 percent.

(Read more: Long gold as a crisis hedge: Is it a loser's game?)

Electronics retailer JB HI Fi climbed 5 percent after reporting a 6.8 percent rise in total sales for the last six months of 2013.

Kospi up 0.3%

South Korean shares recovered after closing at a five-month low in the previous session, while the won rose after hitting a four-month low against the dollar on Monday.

Apple suppliers LG Innotek and LG Display lost 3 percent each while steelmaker Posco fell 0.5 percent ahead of reporting quarterly earnings.

— By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC