Asian shares held near five-month lows on Tuesday after Chinese stocks took another leg down while safe-haven assets received a boost as investors nervously awaited further developments in the deepening euro zone crisis.
China's stocks .SSEC tumbled more than 4.5 percent in early trades, wiping out more than a quarter of its market capitalisation from a peak hit earlier this month, despite surprise monetary easing moves over the weekend.
Volatility in China's stock market in recent days has rippled through Asia, weighing on stock markets from Mumbai to Australia, and prompting investors to rush to the sidelines.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.5 percent but remained within striking distance of a five-month low hit on Monday. Japan's stock index .N225
rose 0.1 percent while Korea .KS11
gained 0.3 percent.
"There is still too much uncertainty in the markets and investors would be watching developments in Greece and China very carefully before jumping in," said Karine Hirn, Hong Kong-based partner of Swedish group East Capital, a $3.5 billion fund management firm.
"Chinese authorities wouldn't want to trigger a meltdown which would spook investors and we may see more market stabilising measures on the way," she said.
Over the weekend, China cut interest rates and lowered reserve requirements to stabilise markets - a rare combination not seen since the depths of the 2008 financial crisis. In fresh steps, authorities are also preparing to allow pension funds to invest in the stock market for the first time.
Notwithstanding the flurry of measures taken by Beijing, high-yielding currencies such as the Australian dollar AUD=D3 remained out of favour as investors sought refuge from the heightened market volatility in safe-haven assets.
A risk gauge, the CBOE Volatility index .VIX, spiked overnight to its highest levels not seen since February.
"All in all many in the market had already factored in the likelihood of Greece defaulting. But there is no guarantee the stability will last. What is worrying is the volatility in the risk asset markets, which could impact currencies," said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.
Greece will not pay a 1.6 billon euro loan instalment due the International Monetary Fund on Tuesday, a Greek government official told Reuters, after talks between Athens and its creditors broke down over the weekend when Prime Minister Alexis Tsipras called a surprise referendum on the austerity plan.
Ratings agency Standard and Poor's cut Greece's sovereign debt rating one notch further into junk levels to CCC-, saying there was a 50 percent probability it would leave the euro zone.
In overnight trading on Wall Street, all three major stock indices tumbled, with the Dow Jones industrial average .DJI shedding 1.95 percent, the S&P 500 .SPX losing 2.09 per cent and the Nasdaq Composite .IXIC dropping 2.4 percent.
While the euro EUR= picked itself off a four-week low of $1.0955 struck overnight, it remained closeted in a narrow range in Asian time as investors waited for further developments. It was last changing hands at $1.1190 per dollar.
The greenback's fortunes in Asia were dented as investors sought safety in the Japanese yen and U.S. government debt which in turn hurt the dollar.
The dollar JPY=EBS was broadly flat on the day at 122.32 yen after falling to a one-month low of 122.10 yen on Monday, with market participants citing options-related support at 122.
In bond markets, 10-year benchmark U.S. debt was trading at 2.32 percent while its Japanese counterparts held firm at 0.45 percent.
In commodities markets, U.S. crude oil futures extended their fall after skidding more than 2 percent on Monday to three-week lows. U.S. crude CLc1 was down about 0.1 percent at $58.03 a barrel.