Asian markets reversed the previous day's hefty gains on Tuesday as a European bailout for Spain's debt-stricken banks failed to convince investors that the spread of the debt crisis in Europe will be halted.
Markets worried the weekend deal could further aggravate Spain's rising public debts, while attention is turning to problems in Italy and the June 17 election in Greece that could determine its fate within the common currency bloc.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.5%, after posting its biggest daily gain in almost 5 months in the previous session.
Japan's Nikkei average opened down 1.7%, after Wall Street fell sharply in a late sell-off.
The euro, which hit its highest since May 23 of $1.26694 on Monday, last stood at $1.2477.
Oil extended losses after tumbling 3 percent on Monday, with US July crude slipping nearly 2% to this year's low of $81.07 a barrel, while Brent July crude fell 1.4% at $96.68, also near the year low of $95.63.
European officials agreed on Saturday to lend Spain up to 100 billion euros, a move which should have made Spanish bank debt look less risky, but investors soon began to worry about details such as how the deal would be structured and whether it would come with conditions.
Investors also worried that if the euro zone's future permanent bailout fund, the European Stability Mechanism, is used for the rescue, they will be subordinate to official creditors and face losses in any debt restructuring. Risks of further credit rating cuts would keep borrowing costs elevated.
"The 'risk-on' trade is over as investors look to the Greek elections and Italy," said Jeff Sica, president of SICA Wealth Management, which manages more than $1 billion in client assets, real estate and private equity holdings.
"This weekend's bailout news does not imply a serious willingness on the part of Europe to tackle its financial crisis but instead implies an act of desperation to delay the inevitable which is the failure of Spanish banks," he said.
He added that while further economic stimulus could offer potential upside for global equities markets, it would only set the markets up for a greater fall in the future as such stimulus measures could not accomplish much in the long term.
The cost of insuring against corporate and sovereign defaults in Asia crept higher early on Tuesday, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 7 basis points.
The rescue for Spain's banks follows bailouts for Greece, Ireland and Portugal since 2010, and comes a week before a crucial election in Greece that could determine whether Athens will stay with the euro bloc.
Cyprus, which is deeply exposed to Greece, strongly hinted on Monday that it may apply for an international bailout before the end of this month, both for its banks and for the state.
One of the gauges for investor confidence in whether Europe could fend off financial contagion from the debt crisis will be a debt auction on Thursday by Italy, which said on Monday it would offer up to 4.5 billion euros of fixed-rate bonds (BTPs) at its regular mid-month auction on June 14.
Renewed market concerns about the government's ability to finance its rising public debts pushed Spanish 10-year bond yields up 25 basis points on Monday to 6.5 percent, on course for their worst day since early April.