Tokyo - Asian shares slid on Tuesday as investors saw opportunities to cash in from recent strong rallies in the face of weak US data and worries that a potential political shake-up could disrupt the eurozone's efforts to resolve its debt crisis.
The MSCI's broadest index of Asia-Pacific shares outside Japan tumbled 0.8%, dragged lower by a steep 1.8% fall in Hong Kong shares.
The euro took the brunt of renewed focus on the eurozone problems, having risen 2.3% so far this year against the US dollar, up about 5.4% against sterling and 1.8% higher against the Australian dollar.
The euro eased 0.1% to $1.3496, retreating further from Friday's 14-1/2-month peak of $1.3711, ahead of the European Central Bank's policy meeting on Thursday.
The euro's fall helped euro/crosses recover, underpinning such currencies as the Australian dollar against the US unit.
Aussie eased 0.1% to $1.0423 after the Reserve Bank of Australia kept its cash rate steady at 3.0%, as expected, having just cut in December.
Spain's opposition party on Sunday called for Prime Minister Mariano Rajoy to resign over a corruption scandal, an allegation Rajoy denies, pushing Spanish 10-year bond yields to six-week highs.
In Italy, 10-year Italian government bond yields hit their highest since late December, as chances of former prime minister Silvio Berlusconi regaining power raised worries about Rome's ability to fix its fiscal problems.
"Markets have been increasingly comfortable with European risks over the past few months and are largely not positioned for this increase in political problems. The outcomes in Spain and Italy are far from certain and may represent stumbling blocks for further expansion in risk appetite," Barclays Capital said in a research note.
The yen took a breather, firming from lows against a broad range of currencies.
The dollar was down slightly at ¥92.31 after scaling its highest since May 2010 of ¥93.185 on Monday, while the euro eased 0.1% to ¥124.61, off its loftiest since April 2010 of ¥126.97 hit on Friday.
"Markets are broadly undergoing a correction and the euro is definitely facing profit-taking, given the pace of its climb. Worries about the eurozone debt crisis always remain a downside risk for the euro, and could push it lower to $1.32-$1.33," said Hiroshi Maeba, head of FX trading Japan at UBS in Tokyo. "But the trend is still upward for dollar/yen, cross/yen. The dollar could reach ¥95 by the end of the month."
As long as markets hold out expectations for the Bank of Japan to implement aggressive monetary easing to beat decades of deflation in Japan, the yen will stay pressured. Any correction to the dollar's rise against the yen was also be seen as shallow, with many traders and analysts seeing a firm floor around ¥87 - ¥88.
Relatively positive data from China on Tuesday failed to change the bearish mood, weighed down by a fall in overnight US equities, which have rallied 6% so far this year, on discouraging US factory orders and eurozone jitters.
The HSBC services purchasing managers' index rose to a four-month high of 54 in January from December's 51.7, underlining confidence in the world's second-biggest economy, which is expected to grow 8.1% this year, off a 13-year low of 7.8% hit in 2012.
"The data globally is unquestionably better but the recovery still seems gradual. (China) hit the bottom and they had a bit of a bounce but nothing much else happened. We don't really seem to have preconditions for a much stronger bounce than that (8% growth)," said Richard Yetsenga, Head of Global Markets at ANZ Research.
Japan's benchmark Nikkei stock average fell 1.3%, after scaling a 33-month high on Monday.
US stocks slid on Monday, leaving the Standard & Poor's 500 Index at its worst day since November after the index rose just 60-odd points away from its all-time intraday high of 1,576.09 on Friday.