By Chikako Mogi
TOKYO (Reuters) - Asian shares slipped further on Tuesday and investors braced for more volatility in Chinese markets as worries spread that tight liquidity could impede China's economic growth and take the shine off an emerging U.S. recovery.
Japan's Nikkei stock average <.n225> opened up 0.1 percent but quickly gave up early gains and fell 0.7 percent. <.t></.t></.n225>
MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> eased 0.1 percent after shedding 1.8 percent to its lowest since early September the previous day.</.miapj0000pus>
"Volatility will rule the market today. The market is more than ripe for a technical rebound, but this probably won't happen as sentiment has deteriorated badly," said Ko Seung-hee, a market analyst at SK Securities, of Seoul shares.
Australian shares <.axjo> fell 0.2 percent on concerns about economic and financial instability in China, its main export market, while South Korean shares <.ks11> opened down 0.5 percent to a fresh 11-month low.</.ks11></.axjo>
China shares suffered their worst daily loss in almost four years on Monday as the authorities showed more determination to curb the risks of shadow banking than accommodating the money market, raising fears of a potential credit squeeze.
Hong Kong's Hang Seng Index <.hsi> closed below the 20,000-point mark for the first time since September 11. and the Shanghai financial sub-index <.ssefn> skidded 7.3 percent in its worst day since November 2008 - during the financial crisis that started that year.</.ssefn></.hsi>
The sell-off sent most of the region's stock indexes well into oversold territory, with most Southeast Asian stocks falling to multi-month lows on Monday, where investor sentiment had already been hurt since the U.S. Federal Reserve said last week it would scale back its stimulus.
DOLLAR TAKES BREAK
Less than a week after the Fed set off a global market sell-off by announcing its intent to scale back stimulus, two Fed leaders - Minneapolis Fed President Narayana Kocherlakota and the head of the Dallas Fed Richard Fisher - downplayed an imminent end to monetary stimulus on Monday and said the acute market reaction was not yet cause for concern.
The dollar's rally slowed on the comments. It has been gaining on rising U.S. yields and the prospect of an improving U.S. economy that has let the Fed to hint at toning down its aggressive bond-buying scheme, which had channeled abundant funds to global markets and underpinned risk asset prices.
The dollar index <.dxy>, measured against a basket of major currencies, was down 0.04 percent at 82.390, after rising to a three-week high of 82.841 on Monday.</.dxy>
The shift out of assets that have benefited most from cheap money has been sharpest in the U.S. debt market, where yields on 10-year Treasury notes at one point spiked to a two-year high of 2.67 percent but dipped to 2.55 percent on Monday on recovering bond prices, which move in opposite direction to yields.
U.S. equities slumped but recovered some losses on the rise in Treasury bond prices, while the pan-European FTSEurofirst 300 index <.fteu3> closed at a seven-month low on Monday. The Euro STOXX 50 Volatility index <.v2tx> hit a nine-month high, reflecting a sharp rise in risk aversion among investors.</.v2tx></.fteu3>
U.S. crude futures were down 0.4 percent to $94.83 a barrel.
(Additional reporting by Jungyoun Park in Seoul; Editing by Eric Meijer)