Asian Stocks Weaken on China Services PMI

Asian markets reversed early gains on Wednesday to close lower after data from China revived fears of a slowdown in the world's second-largest economy.

Australia's S&P ASX 200 tanked 2 percent to fall below the 4,800 level, the Shanghai Composite lost over 1 percent, Japan's Nikkei index fell off an earlier five-week high, and South Korea's Kospi hit a new one-week low.

Activity in China's service sector declined to its weakest level in nine months in June, the official Purchasing Managers' Index (PMI) showed. The report follows two separate PMI surveys earlier this week for the manufacturing sector, which also showed growth falling to multi-month lows.

(Read More: Emerging Market Stocks Now at Cheapest This Year)

Markets are now looking ahead to U.S. event risk later in the day, including trade balance, ADP non-farm payrolls, unemployment claims and the ISM non-manufacturing PMI.

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Australia Skids 2%

Weaker metal prices and disappointing economic data led Sydney's benchmark index to accelerate its losses. Miners led the declines with Mirabela Nickel tanking 16 percent while Cudeco lost 7.5 percent.

Retail sales for May rose by a lower-than-expected 0.1 percent from April, compared to forecasts for a 0.3 percent gain. Retailers declined in reaction with David Jones and Myer both down 3 percent each.

Speaking a day after the Reserve Bank of Australia (RBA) left monetary policy unchanged, governor Stevens said that the central bank "deliberated for a long time" before the decision. That surprised markets and knocked the Australian dollar below the $0.91 handle to hit a new three-year low.

(Read More: Why Currency Isn't the Stock Price of Economy)

Nikkei Slips 0.3%

Japan's benchmark index reversed opening gains in afternoon trade as investors engaged in profit taking, but still managed to close above 14,000. The index hit a five-week high earlier in the session at 14,164 points.

Heavier losses were capped thanks to gains in exporters from a weakening currency. The yen breached the key 100-level against the U.S. dollar for the first time since June 5, powering tire maker Bridgestone 5.5 percent higher and Mitsubishi Heavy Industries up 4 percent.

The world's second biggest initial public offering (IPO) of the year, a $4 billion new listing by Suntory Beverage and Food, closed at 3,145 yen - higher than its opening price of 3,120 yen.

(Read More: World's Second Biggest IPO This Year Debuts Higher)

Shanghai Eases 0.6%

Financials led the benchmark index lower with Industrial and Commercial Bank down 2 percent and Founder Securities lower by 1.4 percent even as money market rates continued to fall. The seven-day benchmark repurchase rate traded at 4.2 percent, slowly approaching it's average 3 percent range.

"As much as the valuations are low and the dividend yield is high, you can't find investors interested in Chinese banks. Why is that? Because there's too much capital risk here, there's too much uncertainty, there's too much regulatory risks, there's just too much," said Jim Antos, bank analyst at Mizuho Securities Asia.

(Read More: Goldman Slashes Target for China Stocks)

Kospi Declines 1.6%

Seoul's exporter stocks were hit by a weaker Japanese currency and extended the previous day's sharp declines. Market heavyweight Samsung Electronics skidded 2.5 percent while LG Electronics lost 4 percent.

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