The urge for safety gave a rare boost to the Japanese yen which notched up particularly large gains on the beleaguered Australian and New Zealand dollars.

Much of the action was in oil where a glut of supply has seen prices fall for almost six months now, so pressuring energy stocks and commodity-related assets globally.

Brent crude shed 70 cents to USD 65.49 a barrel, while  US crude futures lost another 46 cents to USD 62.59. Both had already tumbled more than 4 percent on Monday on expectations that a deepening oil glut would keep prices under pressure into the new year.

Prices are likely to remain around USD 65 a barrel for the next six to seven months until the global economy recovers or OPEC changes its production policy, the head of Kuwait's state oil company said.

While falling energy prices are a boon for consumer spending power in much of the world, it was bad news for resource stocks like Australia's Santos which shed almost 8 percent.

The pain spread across the main Australian share index which skidded 1.7 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8 percent to a seven-week trough.

Spread betters predicted the FTSE, DAX and CAC 40 would all open around 0.4 percent lower.

Japan's Nikkei eased 0.8 percent, but that follows a run of hefty gains which took it to the highest since mid-2007.                

Chinese shares have also been on a tear and Tuesday was no exception as the CSI300 index powered up another 3 percent to peaks last visited in April 2011. It has now climbed by a third in just three weeks.

In currency markets, the yen benefited as nervous speculators cut back on short positions. The dollar faded to 120.15 yen, and away from Monday's high of 121.86, while the euro retreated to 148.00.

The Australian dollar was a major loser, reflecting the country's position as a major commodity exporter, and slid a full yen to 99.04.
The selling spread to the Chinese yuan which was heading for its largest one-day drop since 2008 as corporates bailed out on expectations of further monetary easing.
Spot yuan slid nearly half a percent to 6.2007 per dollar, accelerating a decline that began when China's central bank surprised markets last month by cutting interest rates.
Not helping risk appetite was a Wall Street Journal report that Fed official were seriously considering dropping an assurance that short-term interest rates will stay near zero for a "considerable time".

Such a move would be taken as a sign the central bank was on target to start raising interest rates around the middle of next year, a view that has gained great traction since last week's surprisingly strong payrolls report.

Yields on two-year Treasury debt has spiked to highs not seen since April 2011 while the whole yield curve has flattened markedly as investors wager Fed action will keep inflation low over the long run.

The lack of inflationary pressure combined with a rising US dollar kept gold on the back foot. Spot prices were stuck at USD 1,200 on Tuesday after shedding a couple of bucks the previous session.

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