Asian shares inched lower on Wednesday on worries that the global economic slowdown will hurt corporate earnings, with the market still unconvinced the euro zone can decisively bring down struggling member states' borrowing costs even after yields pulled back.
Prospects for dismal corporate earnings compounded concerns that a deteriorating global economy has taken a toll on profit growth, and sent US stocks down for a fourth day on Tuesday.
"Sluggish growth is now appearing to manifest itself in the form of lacklustre earnings, which weighed on US stocks yesterday," said Lee Young-gon, an analyst at Hana Daetoo Securities.
European equities, on the other hand, rose and Spanish and Italian debt yields eased on Tuesday on the notion that Europe was moving towards putting its rescue fund into action and as euro zone finance ministers agreed to give the first batch of aid to Spain's troubled banks by the end of July.
Traders were far less upbeat about the euro, which last traded at $1.2253, pinned near a two-year low of $1.2225 hit in early Monday Asian trade.
Traders found the latest source of uncertainty in a hearing by the German Constitutional Court into whether the euro zone's bailout fund, known as the European Stability Mechanism, and planned changes to the region's budget rules are compatible with German law.
The ESM is a crucial tool in helping to bring down borrowing costs of indebted nations and breaking the link between the sovereign debt problem and the banking sector stress in Europe.
"Investors have grown sceptical about the decision-making process in Europe and this has hurt euro sentiment," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
"Meetings come and meetings go with investors fast-learning that ensuing policy statements appear to contain still-wet ink on the parchment," he said.
The euro zone's three-year debt crisis, which began with its peripheral members, has engulfed the region's larger economies Spain and Italy. Rome said on Tuesday that it may want to tap euro zone aid to ease its borrowing costs as euro zone finance ministers struggled to soothe market jitters.
Europe's financial woes have also fed into the current deterioration in economic conditions, as evidenced in recent data from the United States and China, the world's biggest and second-largest economies.
China's benign inflation and weak imports pointed to softening domestic demand as well as uncertainties over an external economic downturn, keeping intact expectations that its second-quarter gross domestic product report due on Friday will show the lowest growth in at least three years.
Investor risk aversion weighed on commodities and oil.
Brent crude was down 0.1% at $97.89 a barrel early on Wednesday, while US crude inched up 0.4% to $84.25 a barrel. Oil fell more than $2 on Tuesday on an averted oil workers' strike in Norway and weak China crude import data.
Gold remained lacklustre, having fallen in recent sessions in tandem with other assets as liquidation hit across the markets. Spot gold inched up 0.2% to $1,570.49 an ounce, firmly capped below $1,600.
Gold holdings in the world's eight major exchange-traded products fell by the largest one-day amount since late May, shrinking by 116,427 ounces by the close on Monday to 70.529 million ounces, reflecting some of the investor wariness towards bullion.
Falling Spanish yields helped to improve sentiment in Asian credit markets, where the spread on the iTraxx Asia ex-Japan investment-grade index was 4 basis points narrower early on Wednesday.