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Another sharp sell-off in Chinese stocks in late trade also unnerved some investors and led them to wonder if prices of riskier assets were turning lower for good.

The tepid mood in equity market spilled into Europe. Britain's FTSE 100 .FTSE fell 0.7 percent and France's CAC 40 .FCHI lost 0.8 percent.

The Shanghai Composite Index .SSEC slid 4.3 percent at one point as investors, worried China may further tighten monetary policy, sold blue-chip bank and energy shares. .SS

"The swings in China are radical in the last few days," said Jackson Wong, an investment manager at Tanrich Securities in Hong Kong. "People are still trying to figure out if this is the beginning of a downtrend."

The overall cautious tone kept the MSCI Asian stock index outside Japan down 0.1 percent, an insignificant move compared to its 16 percent jump since early September.

Japan's Nikkei .N225 initially bucked the downdraft and rose to five-month highs, but it too eventually succumbed to end down 0.3 percent. .T

Uncertainty over whether Ireland, faced with record borrowing costs, needs to be bailed out by its euro zone partners to pay its debts also did little for the market mood.

As it is, Ireland's woes have raised borrowing costs for other fiscally strapped euro zone nations such as Spain and Portugal. Euro zone officials are set to meet later to try to find a way to end Ireland's debt crisis.

The euro fell as far as $1.3560 at one point, but clawed back by late trade after dovish remarks from a Federal Reserve official nudged the dollar lower.

But the dollar stayed firm on the day and depressed prices of most commodities. Oil lost 0.8 percent to pull further away from last week's 25-month highs <O/R>.

Yet, some analysts thought the latest pull-back in prices had less to do with a reassesment of market risks, and more to do with investors wanting to take profits and cut stretched bets.

"The European markets could potentially cause contagion pressures to erupt if people start liquidating. But realistically the dynamic within Asia remains very strong," said Peter Redward, the head of emerging Asia research at Barclays in Singapore.

Underscoring Asia's sturdy economic growth, the South Korean central bank raised interest rates on Tuesday and hinted there could be more hikes to come.

That Asia is tightening policy is a world away from the United States, where a Fed official said on Tuesday an exit from the present super-loose policy may be "years away."