 "A man walks past a display of the Nikkei average and other market indices outside a brokerage in Tokyo. Photo: Reuters")
Uncertainty gripped Asian markets on Tuesday as investors braced for a potentially pivotal US presidential debate, shunning stocks while favouring safe-haven bonds and the yen.
Early jitters saw Japan's Nikkei sink 1.4 per cent to its lowest in seven weeks, while the dollar dropped to a one-month trough around 100.08 yen before steadying. A higher yen is seen as a threat to exporter sales and profits.
MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.4 per cent, with the technology and financial sectors both down more than 1 per cent.
The debate between Democrat Hillary Clinton and Republican Donald Trump starts at 0100 GMT and could have a big impact with the race seemingly so close.
Markets have tended to see Clinton as the candidate of the status quo, while few are sure what a Trump presidency might mean for US foreign policy, trade and the domestic economy.
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On Wall Street, the Dow fell 0.91 per cent, while the S&P 500 lost 0.86 per cent and the Nasdaq 0.91 per cent. The pan-European STOXX 600 index also fell 1.6 per cent to a one-week low.
Big banks led the declines after Deutsche Bank slid to a record low on concerns it might need to raise more capital to meet $14 billion in US fines.
"There's a thing called Trump thermometer," said David Bloom, London-based global head of forex strategy at HSBC.
"If you want to know who won the presidential debate, don't go to Twitter or Facebook. Just look at the dollar/Mexico peso."
The peso has hit record lows in recent days on concerns a Trump victory would threaten Mexico's exports to the United States, its single biggest market.
"If Clinton wins, you will get a big rally in the peso, and reasonable rallies in emerging markets," he said, while if Trump gets the nod it should benefit safe-havens such as the yen, the euro and the Swiss franc.
The dollar was shaky on Tuesday at 100.36 yen and threatening a psychological bulwark at 100.00, with the euro firm at $1.1243.
Other safe-havens include US Treasuries which caught a bid ahead of the debate and pushed longer-term yields to three-week lows.
In commodity markets, oil ran into profit-taking having bounced 3 percent on Monday as the world's largest producers gathered in Algeria to discuss ways to tackle a crude glut that has battered prices for two years now.
Brent crude eased back 45 cents to $46.90 a barrel, while U.S. crude dipped 38 cents to $45.55 per barrel.
