Japan's Nikkei average fell as much as 2 percent on Tuesday, away from 9-1/2-month highs and its first decline in seven days, as turmoil in the Middle East triggered profit-taking in blue-chip shares.
With the exception of oil and gas shares, all sectors fell as investors pocketed profits across the board after the Nikkei's longest winning streak in over a year.
In Libya, violence has escalated with protests sweeping the capital Tripoli and anti-government forces reportedly taking control of the city of Benghazi.
The Nikkei average closed down 1.78 percent, to 10,644.70. It fell as low as 10,639.78, the lowest level in almost two weeks. The broader Topix ended down 1.84 percent.
Market participants played down any short-term impact on the Nikkei after Moody's Investors Service changed the outlook on the Japan's Aa2 sovereign rating to negative from stable.
Banking shares, which have advanced 9.5 percent in year to date outperforming the broader market's rally, extended losses in heavy volume after the downgrade.
Mitsubishi UFJ Financial Group, Japan's biggest bank by assets, fell 3.6 percent to 453 yen and Mizuho Financial lost 4.1 percent to 166 yen.
Seoul Shares Drop
Seoul shares fell 1.8 percent on Tuesday as turmoil in Libya pushed down stocks in construction firms operating there and a related spike in oil prices sent transporters like Korean Air Line tumbling.
The Korea Composite Stock Price Index (KOSPI) ended down 1.76 percent or 35.38 points at 1,969.92 points.
Foreign investors were sellers of a net 122.6 billion won ($110.5 million) worth of stocks.
Losses were led by shares in construction firms with ties to Libya. Hundreds of armed Libyans attacked a South Korean-run construction site in Tripoli, sparking a clash in which at least 18 foreigners were hurt, Seoul's foreign ministry said on Monday.
The unrest has resulted in losses and injuries in the local operations of Hyundai Engineering & Construction, Hanmi Parsons and Shinhan Engineering & Construction, according to a local media report.
Shares in Hyundai E&C tumbled 9.7 percent and Shinhan E&C fell 3.4 percent. Daewoo Engineering & Construction lost 6.8 percent.
Australian stocks fell, while New Zealand shares declined after Christchurch was struck by a second major tremor in five months.
New Zealand's benchmark NZX 50 Index pared back losses to closed 0.7 percent lower. The New Zealand dollar fell by more than 1 percent.
Australia's benchmark S&P/ASX 200 Index closed down 0.9 percent, at a 3-week closing low.
Shares of banks and insurers all fell, by between 1.5 and over 2.4 percent, as the New Zealand earthquake raised worries about the sector's exposure.
Against the trend, market leader BHP Billiton rallied, closing up 1.6 percent after announcing its first major acquisition since three failed takeovers.
BHP Billiton will buy Chesapeake Energy's holdings in Arkansas' Fayetteville shale natural gas field for $4.75 billion in cash, marking its entry into the shale gas business.
In Greater China, Chinese and Hong Kong stocks declined around 2 percent.
Shares of Alibaba fell as much as 10 percent in morning trade after it said its CEO and COO had resigned following an investigation into a spike in the number of fraudulent transactionstaking place on its website.
Airlines and carmakers also came under selling pressure as the violence in Libya pushed up oil prices. Chinese flag carrier Air China was down 7 percent, its biggest decline in about two weeks, while Hong Kong's dominant carrier Cathay Pacific fell 5 percent to hover around six month lows.
Markets in India and Southeast Asia followed the downtrend. Declines on India's Sensex was more modest compared to its Asian peers, down 0.1 percent.
Southeast Asian stocks were off by about 1 percent.
In Singapore, the Straits Times Index (STI) was at its lowest level since September, with traders eyeing the key 3,000 level. It was last trading at 3,028.40, down 1.37 percent.
Shares of commodity firms Olam International were down nearly 7 percent, while Noble Group extended losses, retreating 3.7 percent.
CapitaLand's stock slipped 2.4 percent, following the broader market downtrend. Southeast Asia's biggest developer posted a better-than-expected fourth quarter net profit on Tuesday.