Asian markets mostly fell on deepening European debt concerns on Tuesday after 28 Spanish banks were hit with a downgrade as traders remained downbeat ahead of a European Union summit.
Adding to the gloomy sentiment, Cyprus became the fifth eurozone country out of the 17 countries in the bloc to seek a bailout.
Tokyo fell 0.50 percent by the break, Sydney was 0.46 percent lower, Shanghai lost 0.44 percent and Seoul was 0.15 percent off but Hong Kong rose 0.13 percent.
Eyes are on the two-day meeting of EU leaders on Thursday and Friday as they try to overcome their differences to save the troubled euro.
But despite so much at stake — with Italy and Spain now in focus — investors say they do not expect any concrete plan to evolve owing to the divisions between the pro-growth and pro-austerity camps.
“Expectations are very low for the upcoming European summit,” said Tim Waterer, senior trader at CMC Markets in Sydney.
“There is a feeling that nothing concrete is going to come out of it and that we will be none the wiser about the solution to long-term problems,” he told Dow Jones Newswires.
In a fresh blow, ratings agency Moody’s hit 28 Spanish banks with new credit downgrades Monday.
As Madrid formally requested a rescue loan of up to 100 billion euros ($125 billion) for the banking sector from its eurozone partners, Moody’s said the banks faced rising losses from commercial real estate loans.
The agency said that Madrid’s own lowered credit grade also contributed to the rating cuts.
Moody’s last week cut the ratings of 15 of the biggest names in banking including Goldman Sachs, Barclays, Citigroup, HSBC and Deutsche Bank, citing their exposure to each other and the financial crisis.
On Monday Cyprus, which had a large exposure to Greek government debt, on requested financial help from its eurozone partners, following Ireland, Greece, Portugal and Spain.
While it did not specify the amount, local media speculated it would be in the region of five billion euros.
European and US stocks tumbled. On Wall Street the Dow fell 1.09 percent, the S&P 500 slid 1.60 percent and the tech-rich Nasdaq lost 1.95 percent.
London’s benchmark FTSE 100 shed 1.14 percent, the Frankfurt DAX 30 dropped 2.09 percent and the CAC 40 in Paris sank 2.24 percent.
Madrid dropped 3.67 percent, Milan tumbled 4.02 percent, and Athens plunged 6.84 percent.
In early Asian forex trade the euro bought $1.2514 and 99.73 yen, marginally up from $1.2502 and 99.58 yen in New York late Monday.
The dollar bought 79.68 yen, compared with 79.67 yen.
Oil prices gained, with New York’s main contract, light sweet crude for delivery in August, adding 11 cents to $79.32 and Brent North Sea crude for August rising 28 cents to $91.29.
Gold was at $1,584.20 an ounce at 0330 GMT, compared with $1,569.01 late Monday.