Asian shares fell on Wednesday after Greece failed to form a government, setting the stage for a June election that could raise the risk of Athens abandoning the euro and deepening the euro zone's debt crisis.
Greek political leaders meet on Wednesday to form a caretaker government that will lead the country into its second election in just over a month.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5% after retreating as much as 1.1% to a four-month low on Tuesday. The index has been falling for the past three sessions, and has fallen more than 7% since May 2.
Japan's Nikkei average opened down 0.4%, after closing at a 3-1/2 month low.
Financial markets have been rattled by the prospect that a victory next month by Greek leftists opposed to austerity measures - conditional to an international bailout - could put not only Greece's euro membership but the euro zone's fiscal consolidation efforts at stake.
A Greek exit from the euro may be manageable given its economic size, but a far more significant issue is the flow-on impact on unpopular restructuring policies agreed by other struggling economies such as Italy and Spain.
"The direct costs of Greek euro exit would be huge for Greece, but manageable for the rest of the euro area. Our concern is contagion," said Michala Marcussen at Societe Generale.
"A speedy and forceful response would be required to stem this ... It's a question of political will," Marcussen said.
Global stocks fell and European shares hit their lowest closing level since the start of 2012 on Tuesday. The benchmark Athens index <.ATG> plunged 3.6% to a fresh 20-year low, and ongoing concerns over Spanish banks knocked Spain's IBEX <.IBEX> index down to its lowest level since late 2003.
The euro held steady around $1.2735, after touching a four-month low of $1.27215 on Tuesday. The Australian dollar, closely linked to risk sentiment, hovered near a five-month low of $0.9921 reached on Tuesday.
Spot gold hovered near a 4-1/2 month low of $1,541.10 an ounce seen on Tuesday, when the price was dragged lower by the weak euro and investors seeking to cash in.
Risk aversion continued to weigh on Asian credit markets, pushing the spread on the iTraxx Asia ex-Japan investment-grade index wider by 5 basis points.
Greek contagion concerns pushed Italian 10-year government bond yields above 6% on Tuesday for the first time in 2-1/2 months. Italy tracked Spain higher, with Spanish bond yields staying over 6%.
"To arrest market fears, proactive measures are needed," said Barclays Capital in a research note.
"Unfortunately, they seem nowhere in sight. This suggests that risky assets are likely to trade erratically at best, with a bias to underperform."
Greek fears overshadowed some positive economic data on Tuesday that failed to soothe market sentiment.
US data showed the pace of growth in New York state manufacturing rebounded, while a gauge of homebuilder sentiment rose to the highest in five years this month.
Germany on Tuesday said strong exports helped its economy grow 0.5% in the first quarter of 2012, above forecasts, offsetting zero growth in France and recession in Italy and Spain and saving the whole 17-member euro zone economy from slipping into recession for the second quarter in a row.
France and Germany pledged to forge a joint approach in boosting growth in recession-plagued Europe ahead of a European Union summit next month, after new French President Francois Hollande and German Chancellor Angela Merkel met on Tuesday in Berlin.
Oil fell on Wednesday, with US June crude slipping 0.8% to $93.23 a barrel, while Brent crude eased 0.5% to $111.73 a barrel.