"Volatility is the enemy of investor appetite," said thehead of index trading at a U.S. fund. "Any sign of governmentsupport to prop up the market will be used by investors to exitthe market completely rather than add fresh positions."
Asian stocks fell tothree-week lows on Tuesday as a deepening rout in Chinese stockserased risk appetite - sending investors flocking to safe-haveninstruments such as government bonds and the Japanese yen.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8 percent in early deals, its lowestlevel since July 9 as mainland Chinese indexes opened 2- 5percent lower.
"Volatility is the enemy of investor appetite," said thehead of index trading at a U.S. fund. "Any sign of governmentsupport to prop up the market will be used by investors to exitthe market completely rather than add fresh positions."
Since hitting a peak in early June, Chinese shares have gonethrough a roller-coaster ride with main China indexes falling bya third in less than a month before rebounding by a quarter,only to stage its biggest one-day fall since2007.
While broader Asian markets have been initially resilient tothe fireworks in Chinese stocks, they have started to move moreclosely in step with the mainland over recent days in theabsence of fresh triggers elsewhere.
Correlations between the MSCI gauge for regional stocks andthe Shanghai index has risen to 0.5 - its strongest innearly a year - indicating the market rout is starting to have abroader regional impact.
Tokyo's Nikkei fell more than 1 percent, with astrong yen accelerating the decline. Australian shares fell 0.9 percent and South Korea's Kospi shed 1 percent.
Investor sentiment was also cautious ahead of a two-day U.S.Federal Reserve meeting beginning later today where someinvestors believe the Fed's rate-setting Open Market Committeewill make its case for hiking rates as early as September.
Overnight, the Dow dropped 0.7 percent and Nasdaq fell 1 percent while share indices in Frankfurt andParis tumbled more than 2.5 percent.
In currencies, the dollar was on the back foot at 123.12 yen as safe-haven assets were boosted by market jitters, offsetting upbeat U.S. durable good orders data.
The euro was little changed at $1.1091 after surgingto a two-week high of $1.1129 overnight thanks to a bullish Ifosurvey of German business sentiment.
Bonds were the solitary bright spot in Asia with U.S.Treasuries and Japanese government debt standing tall in a seaof red across stock markets as investors dumped riskier bets.
Ten-year Japanese bond yields held firm at 0.40percent, from 0.55 percent two weeks earlier, a large move forthe markets while 10-year U.S. Treasuries held at 2.2 percent.
Oil struggled at four-month lows after the Chinese stockmarket crash fuelled worries the world's biggest energy consumermay cut back and as more evidence emerged of a global crudesupply glut.
U.S. crude was down nearly a percent at $46.98 abarrel, near $46.91, its lowest since late March.
Copper, heavily influenced by demand from keyconsumer China, languished near a six-year low of $5,164 a tonneon the London Metal Exchange.
The broader Thomson Reuters CRB commodities index also hit a six-year low.
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