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Hong Kong - Asian shares tumbled and the euro hit a four-month low on Tuesday amid growing concern about Greece's eurozone future as talks on forming a government remain deadlocked.
Dealers are also keeping an eye on Spain as the country's banking sector comes under huge pressure, while Italy saw the ratings of 26 of its lenders downgraded amid fears over their exposure to the region's debt crisis.
Tokyo closed 0.81%, or 73.10 points, lower at 8 900.74 while Sydney lost 0.71%, or 30.7 points, at 4 266.3.
Seoul closed 0.77% lower, easing 14.77 points to 1 898.96.
In afternoon trade Hong Kong was up 0.37% and Shanghai was down 0.85%. The Shanghai Composite Index, which covers both A and B shares, lost 20.34 points to 2 360.38.
The losses were in line with Wall Street, which has also been infected by eurozone fear. The Dow fell 0.98%, the S&P 500 dropped 1.11% and the Nasdaq slipped 1.06%.
Greece's politicians have for the past week failed to agree on a coalition government, after May 6 polls saw 70% of the electorate vote against the ruling parties who introduced austerity measures needed to qualify for bailout cash.
The heads of the main groups, including the anti-cuts radical left Syriza party, are set to meet later on Tuesday for talks on forming a technocratic government.
Another failure to reach agreement will see fresh elections next month that observers suggest would see a better turnout for Syriza, which came second in the election and has said it will tear up a deal Athens struck with creditors for last year's bailout.
Such a scenario would see Greece default on its huge debt servicing and its eventual exit from the eurozone, a scenario many say is increasingly possible, with top officials seemingly acknowledging so.
European Commission president Jose Manuel Barroso said Greece should "leave the euro if it fails to respect the strict rules it agreed to.
"I have a lot of respect for Greek democracy... but I also have to respect the other 16 parliaments," he said in an interview with Italian news channel SkyTG24.
"Markets are aggressively pricing in a messy Greek default and a potential exit from the eurozone," Stan Shamu, market strategist at IG Markets, told Dow Jones Newswires.
Adding to the continent's crisis is concern over Spain's banking sector, which has been ravaged by bad loans, leading European finance ministers to call on Madrid to "speed up" work on reforms.
Falling confidence in Spain, where one in four people are jobless, saw yields on its benchmark 10-year bonds rise above the crucial 6.0% level.
And in Italy, Moody's said on Monday it had slashed its credit ratings by up to four notches for 26 banks, citing their vulnerability to the country's recession and trouble in the eurozone.
It said the move made the ratings for Italian banks among the lowest within advanced European countries.
The euro hit a four-month low because of the growing crisis over Greece's future in the eurozone but was stable in Asian trade on Tuesday.
In Tokyo, the single currency stood at $1.2827 and ¥102.44, slightly up from $1.2823 and ¥102.37 in New York on Monday.
The dollar was at ¥79.90, up slightly from ¥79.84 in New York.
On oil markets New York's main contract, West Texas Intermediate (WTI) crude for delivery in June was down 63c to $94.15 per barrel while Brent North Sea crude for June shed 58c to $110.99 in the afternoon.
Gold was at $1 552.74 at 06:15 GMT, compared with $1 562.76 late Monday.
In other markets:
- Wellington closed 0.57%, or 20.44 points, lower at 3 534.92.
Telecom fell 2.28% to NZ$2.57, Fletcher Building edged up 0.32% to NZ$6.28 and Contact Energy gained 0.41% to NZ$4.84.
- Taipei rose 18.46 points, or 0.25%, to 7 395.64.
