Most Asian shares slumped on Wednesday as the prospects of a reduction in the US Federal Reserve's stimulus early next year prompted investors to cash in gains from their recent rallies.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7 percent to its lowest levels in almost two weeks while Japan's Nikkei share average dropped 2.6 percent from a five-month high hit on Tuesday.
That retreat, which came after European shares had suffered their biggest falls since August, stemmed from profit-taking ahead of Friday's U.S. job data, but also reflected worries about the Fed's exit from its asset purchase scheme.
"I think financial markets have already priced in an eventual tapering in the Fed's stimulus. The question is whether the economy can withstand it. The U.S. economy slowed after the end of QE1 and QE2. So one cannot be so sure whether it would be okay this time," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.
QE1 and QE2 refer to the Fed's previous episodes of massive asset purchasing, or quantitative easing, the first in 2008-2010 and the second in 2010-11.
Many analysts expect the Fed to begin reducing its latest bond purchases, dubbed QE3, at its March meeting, but some think that could be brought forward to January, or at the extreme, later this month, if the employment data comes in strong.
On Wall Street, the Dow Jones industrial average fell 0.6 percent while the Standard & Poor's 500 Index declined 0.32 percent, with consumer discretionary shares leading the losses amid signs of weak holiday shopping.
While Friday's U.S. jobs report for November is seen as by far the most important, traders will be looking to the ADP employment report, new home sales figures, services activity readings from the Institute for Supply Management, all of which are scheduled for Wednesday.
Solid data on U.S. manufacturing and housing in recent weeks has boosted optimism that the U.S. economy was barely damaged by a government shutdown in October.
The spectre of tapering in the Fed's bond-buying could spook emerging market shares and currencies in particular -- given that they were among the hardest-hit when