Dismal China PMI Sees Asian Losses Widen

China stocks led Asian markets lower on Tuesday after a preliminary survey of factory managers showed the expansion in factory activity eased in April, renewing fears of a slowdown in the world's second largest economy.

The Shanghai Composite tanked 2.6 percent while the Hang Seng Index dropped well-below the 22,000 mark to lose 1.1 percent.

Elsewhere, the Nikkei retreated from the previous day's near five-year high, while Seoul's Kospi dipped below the 1,920 level. But Australia's benchmark S&P ASX 200 jumped 1 percent to hit a one-week high.

HSBC's flash PMI data revealed a tepid snapshot of factory growth in the mainland with the figure falling to 50.5 from March's reading of 51.6.

However, one analyst says that the data does not necessarily translate into an economic deceleration. "What I want to know is, are we reaching a point where the economy is going to be stable around 7.5 percent. The answer is a resounding yes," said Andrew Freris, chief investment advisor for Asia at BNP Paribas Wealth Management.

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Greater China Down

Mainland stocks accelerated their pace of losses to fall for a second session. The Shanghai Composite traded just 20 points shy of last week's 2013 low of 2,165 points.

Manufacturers in the machinery and metals industries led losses with Huaguang Boiler down by 9 percent.

Financials also tanked with New China Life Insurance and Founder Securities slipping over 6 percent each on reports that non-performing loans rose 21 percent in the first quarter from a year earlier.

In Hong Kong, consumer stocks were two of the biggest percentage losers with China's largest footwear retailer, Belle International, down by 4 percent and food producer Want Want dropping nearly 3 percent.

(Read More: Uh-oh, China's PMI Miss Spells Trouble Ahead)

S&P ASX 200 Rallies

Sydney's benchmark outperformed Asian peers thanks to a near 10 percent rally in Woodside Petoleum, Australia's top oil and gas company. Investors dove into the stock after the firm announced that it will return over $530 million to shareholders in the form of a special dividend.

"We aren't totally shocked by this capital management initiative, however the key here is that when the special dividend is included, the stock now trades on a dividend yield of around 7% (depending on whose earnings estimates you use)," wrote Chris Weston, chief market strategist at IG Markets in a note.

Virgin Australia rallied 5.7 percent after regulators granted the carrier approval to acquire rival Tiger Australia in a move that will increase domestic competition with Qantas Airways.

Nikkei Pulls Back

Currency moves dominated trade in the Nikkei for a second session as the yen paused in its descent towards the 100-handle per dollar, which led the index to fall to the 13,530 level.

(Poll: Will the Dollar Hit 100 Yen This Week?)

"I am in the camp that dollar-yen will trade between 95-100," said Robert Rennie, global head of FX Strategy at Westpac Bank. "But the market clearly wants to break higher and if U.S. GDP data on Friday comes in at a strong number, that could be enough to take dollar/yen higher."

Domestic-focused stocks reversed Monday's gains with the real estate sector amid the worst hit. Tokyo Tatemono lost 5.3 percent while Mitsui Fudosan fell 3.7 percent.

Seoul Techs Fall

In Seoul, losses crept in from a softer yen. A depreciating Japanese currency spells trouble for its Korean peers as a weak yen hurts their bottom line.

Techs reversed Monday's gains with market heavyweight Samsung Electronics losing 1.3 percent. Panel-maker LG Display fell 1.1 percent despite reporting a quarterly operating profit of $135 million, topping Reuters forecasts.

Focus is expected to turn to Apple as the U.S giant is due to release earnings later on Tuesday.