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MSCI's broadest index of Asia Pacific shares outside Japan fell 0.3 percent, reversing course after gaining as much as 0.7 percent earlier. Japan's Nikkei stock average .N225 fell 1.3 percent.

As focus shifted to concerns over Italy's borrowing costs, Asian credit markets remained cautious, keeping a widening bias on the spreads on the iTraxx Asia ex-Japan investment grade index - a gauge of investor appetite for risk. The spread was slightly wider on Tuesday.

Italian Prime Minister Silvio Berlusconi faces a crucial parliamentary vote on public finances later on Tuesday which could sink his government if enough party rebels desert him.

"The new Greek government is providing some optimism, but going forward, the markets are expected to turn their focus to Italy, which is too big to fail, yet too big to bail," said Phillip Futures analyst Ong Yiling.

European shares were expected to rise, tracking gains on Wall Street, with financial spreadbetters expecting Britain's FTSE 100 .FTSE index to open up 0.6 percent, Germany's DAX .GDAXI to rise 1.1 percent and France's CAC-40 .FCHI to gain about 0.7 percent.

Equities trading volume was low generally, with gains linked to local factors while overall investor mood remained cautious.

"Investors are largely taking a wait-and-see stance right now. Neither buying nor selling appetite is strong as they watch developments in Europe," said Han Beom-ho, a market analyst at Shinhan Investment Corp.

Chinese shares were supported by hopes for a year-end rally on optimism that Beijing may selectively loosen its grip as inflationary pressures ease and growth moderates.

Seoul shares .KS11 turned negative to fall 0.8 percent after being lifted earlier on Tuesday by gains in shipyards and LG Electronics (066570.KS).

Gains in equities and a firmer dollar eased appetite for safe-haven gold, taking bullion off its 6-1/2-week high hit on Monday. Gold inched down 0.2 percent to $1,790 an ounce on Tuesday after rising over 2 percent the previous day.

The dollar index .DXY against six key currencies inched up 0.2 percent.

ITALIAN SPREADS WIDEN

The euro fell 0.2 percent to $1.3745 against the dollar as investors feared that political uncertainty in Italy and Greece could derail Europe's efforts to implement a bailout plan to prevent a Greek default.

The single currency fell as low as $1.3679 on Monday, but stayed within the $1.3608 and $1.3866 range of the past week.

Berlusconi defied intense pressure to resign on Monday, pushing yields on Italy's 10-year bonds to 6.67 percent, their highest level since 1997.

Italy, the third largest economy in the euro zone, has the biggest government bond market. Borrowing costs hitting the 7 percent level were widely seen as unsustainable for its debt.

"The threat to the FX market, obviously, is that a country with nominal GDP growth of just 1.8 percent at the last count and debt totaling 120 percent GDP cannot sustain 6.5 percent yields for long," said Kit Juckes, strategist at Societe Generale.

Investor jitters over Italy's debt has helped widen the spread of bonds issued by the European financial stability facility and German government bonds by about 50 basis points over the past month.

The spread on Italian government bonds over Bunds shot up to 490 basis points on Monday, compared with around 350 basis points a month ago.

European policymakers were increasing pressure to put Italy under full surveillance, with Jean-Claude Juncker, the chairman of Eurogroup finance ministers saying the European Central Bank would take part in monitoring economic reforms along with the European Commission and the International Monetary Fund.

While attention has shifted to Italy, bargaining over the choice of a new prime minister in Greece maintained the risk of a political vacuum.

Market jitters lingered over a lack of funding to bolster the bailout fund. No pledges have been received yet for new money.

This has prompted euro zone finance ministers to speed up legal and technical preparations for leveraging the bailout fund to around 1 trillion euros by the end of November to deploy it in December. This may help shield vulnerable but solvent economies such as Italy and Spain from a possible Greek default.

(Additional reporting by Ian Chua in Sydney, Jungyoun Park in Seoul and Carrie Ho in Shanghai; Editing by Kavita Chandran)

The revelation by the Japanese maker of endoscopes and cameras was the biggest disclosure about the mysterious deals, which are at the center of a high-profile governance scandal that followed dismissal of its British CEO Michael Woodford.

The announcement sent its shares down 29 percent to a 16-year low on Tuesday. The company has lost 70 percent of its value since it fired ex-CEO turned whistleblower Woodford.

The 92-year-old company said in a statement that its new president, Shuichi Takayama, would hold a news conference at 12:30 p.m. (10:30 p.m. ET) to elaborate on the matter, which it said had come to light as part of its cooperation with a third-party panel set up to investigate the transactions.

"Through this process (of the third-party investigation), we found that from the 1990s the posting of losses on securities investments had been deferred," the company said in a statement.

The company said it had funneled money related to the acquisitions through various funds and other measures to defer posting the losses.

A spokesman for the Tokyo Stock Exchange said the bourse needed more information before deciding whether to put Olympus shares under supervision, a step toward possible delisting.

The TSE spokesman said it needed to examine the size of the deferred losses and whether they had an impact on shareholders' investment decisions before taking any further action.

"This is very serious. Olympus admitted it has made false entries to cover its losses for 20 years. All people involved in this over 20 years would be responsible," said Ryosuke Okazaki, chief investment officer at ITC Investment Partners. "There is a serious danger that Olympus shares will be delisted. The future of the company is extremely dark."

The firm has come under increasing pressure to disclose more information to address shareholder concerns in an escalating scandal that has prompted law enforcement agencies in Japan and the United States to investigate.

Shares in Olympus opened untraded due to a glut of sell orders after the announcement.

The company had suddenly fired Woodford on October 14, saying he failed to understand the company's management style or Japanese culture.

But Woodford said he was forced out for questioning $687 million for advice on the $2 billion Gyrus acquisition in 2008, the biggest fee in M&A history and larger than its profit forecast of 50 billion yen ($641 million) for the current financial year.

Woodford also questioned the acquisitions of three small Japanese firms whose value had been largely written off after the purchases.

Prodded by institutional shareholders, Olympus has named six men, including a former Japanese supreme court justice, to investigate the past M&A deals in which it has been accused of making unjustifiably large payments.

(Additional reporting by Antoni Slodkowski: Writing by Linda Sieg; Editing by Michael Watson, Edmund Klamann and Miyoung Kim)

Greece's outgoing Socialist prime minister and conservative opposition leader raced to put in place an interim national unity government for just long enough to save the country from imminent default by implementing a new bailout program.

Former European Central Bank vice-president Lucas Papademos was tipped to head a transitional cabinet charged with pushing the 130 billion euro ($170 billion) bailout plan through parliament to secure a crucial 8 billion euro aid tranche before early general elections in February.

Whoever leads the temporary administration will face a monumental task in restoring order to a country of 11 million whose chaotic economy and politics are shaking international confidence in the entire euro project.

In Italy, Prime Minister Silvio Berlusconi defied huge pressure to resign as he struggled to hold a crumbling center-right coalition together after being forced to accept intrusive IMF surveillance of his economic reforms in an attempt to restore investor confidence.

Political sources said leaders of Berlusconi's PDL party had urged him to resign late on Sunday but he was resisting.

A cabinet minister said Italy would face early elections if party rebels strip Berlusconi of his majority in a crunch vote on public finances in parliament on Tuesday.

"If we have the majority we'll carry on, otherwise there'll be elections," Gianfranco Rotondi, a minister without portfolio, said after meeting Berlusconi at his Milan home.

Italian government bond yields rose to their highest since 1997 -- approaching levels seen as unsustainable -- as the political turmoil in Rome threatened to drag the euro zone's third largest economy deeper into regional debt crisis.

"DANGEROUS SPIRAL"

In Paris, President Nicolas Sarkozy's center-right government announced a new wave of austerity measures, bringing forward a rise in the retirement age, raising some taxes and de-coupling welfare benefits from inflation, in a drive to cling on to France's top-notch AAA credit rating.

The package designed to save 18.6 billion euros in 2012 and 2013 inflicted further pain on voters six months before Sarkozy is expected to seek re-election against a resurgent Socialist opposition, whose candidate, Francois Hollande, is far ahead of him in opinion polls.

Prime Minister Francois Fillon said French public finances had been in the red for 30 years and the time had come to break with the damaging habit of spending beyond its means.

"We've got to pull out of this dangerous spiral," he told a news conference.

Finance ministers of the 17-nation currency area were set to accelerate the construction of a firewall to try to protect solvent but stressed economies in Spain and Italy from the fallout of a potential Greek default.

At a meeting in Brussels later on Monday, they were due to discuss the Greek crisis and approve two options for leveraging the European Financial Stability Facility, to be put into action by the end of November, a month earlier than planned.

Euro zone leaders agreed last month to scale up the rescue fund's financial firepower to around 1 trillion euros by offering first loss guarantees on new bond issues, and attracting foreign investors through a special purpose vehicle with credit enhancements.

Europe's top economic official, Olli Rehn, said that while the European Commission had to be ready for all eventualities, there was no study being conducted of how a country could leave the euro zone, which is not foreseen in the EU treaty.

"We want to ensure that Greece can and will stay in the euro," he told the European Parliament.

While ministers work to build a more powerful firefighting tool, the task of trying to prevent a bond market meltdown that could force bigger euro zone economies to require rescuing has fallen to the European Central Bank.

The ECB disclosed on Monday that it had stepped up purchases of euro zone government bonds, presumed to be mostly Italian, buying 9 billion euros last week in the first few days in office of new ECB President Mario Draghi.

But the bond-buying, which prompted the two most senior German ECB policymakers to resign this year, failed to stop Italian spreads over safe-haven German Bunds hitting a euro lifetime high due to the deepening political instability.

NO TO GOLD

Another row between the guardians of German central bank orthodoxy and euro zone financial firefighters burst into the open when the German government was forced to deny reports that it had sought to tap the Bundesbank's gold reserves.

Several G20 sources said leaders of the world's major economies had discussed at a summit in Cannes last week the possibility of euro zone countries pooling their borrowing rights at the International Monetary Fund to provide greater leverage for the EFSF. The Bundesbank holds Germany's Special Drawing Rights, secured by its gold reserves.

"German gold reserves must remain untouchable," Economy Minister Philipp Roesler said when asked about the issue. The Bundesbank and a spokesman for Chancellor Angela Merkel also ruled out the idea.

The European Union did receive one boost on Monday to its efforts to limit the fallout from the debt crisis by countering a risk of bank credit to the real economy drying up.

The European Investment Bank, the EU's soft lending project finance arm, told ministers it could provide up to 74 billion euros of lending support to beleaguered European banks over two years if its capital base was reinforced in part with cash from its shareholders, which are the 27 EU governments.

"The risk of the banks de-leveraging is not negligible and the EIB lending to the real economy through banks is thus important to maintain and even increase," an EIB paper seen by Reuters said.

EU banks have to raise a total of 109 billion euros of additional capital by the end of June under a recapitalization plan agreed by the bloc's leaders last month.

(Additional reporting by Ana Nicolaci da Costa in London, Gavin Jones and Barry Moody in Rome, Brian Love and Vicky Buffery in Paris, Jan Strupczewski and John O'Donnell in Brussels, Harry Papachristou and Ingrid Melander in Athens, Ritsuko Ando and Terhi Kinnunen in Tampere,; Writing by Paul Taylor; editing by Janet McBride)

U.S. exchanges, meanwhile, have cut margin requirements on some accounts from MF Global to limit the fallout on futures markets from the collapse of the broker.

UK administrators KPMG said 954,000 positions were open out of the 1.6 million positions in place when MF Global Holdings Ltd filed for bankruptcy protection on October 31.

Traders on the London Metal Exchange said turnover was thinner than usual partly due to delays in transferring MF Global positions to new brokers.

"Nothing has happened yet. We are waiting for it every hour. Therefore customers are reluctant to put on any more new trades before they know what has happened with the old ones," a metals trader said.

An oil broker in London said his firm had sent transfers to ICE at the beginning of last week but was still waiting.

"They are still stuck, and no transfers are taking place. Our clients are waiting. It's very confusing. We don't know if the positions will be at the original prices or not."

Tamas Varga at brokers PVM Oil Associates in London called for changes in how client positions are handled in a bankruptcy and also in how regulators treat firms that move into risky speculative trading.

"There. . . seems to be a lot of confusion about the way the exchanges and their associated clearing houses have handled and are continuing to handle the bankruptcy and account holders' positions," he said.

"There should be a distinct separation and understanding amongst all involved in trading -- and clear thinking about the differences in regulating those who take on proprietary risk in the course of their business and those who don't."

UK administrators said they had unwound the entire foreign exchange portfolio consisting of 25,000 trades with a notional value of $60 billion.

They were also in talks about selling parts of the MF Global business in the UK, KPMG's Richard Heis said in an interview.

"The ... operation is not saleable as a total entity, but there are numerous discussions going on with various potential acquirers of part of the business," he said, declining to give further details.

MARGIN RELIEF

Exchanges CME Group and IntercontinentalExchange Inc took action over the weekend to reduce margins of MF Global clients.

MF Global customers who moved accounts to new brokers were forced to post additional margins because some of the original funds were held back due to a court order.

"The exchanges have lowered the margins to help the transition until the cash arrives," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.

"While it's a prudent thing that the exchanges are allowing people to transfer the positions away from MF Global, funds should also be transferred as well, instead of having people pay the margins twice."

The CME also asked brokers who have taken over customer accounts from MF Global to not disburse any of the money until at least the close of business on Tuesday as it sought to verify the amounts involved.

Traders had worried that a rush to cover margin requirements on MF Global accounts transferred to other brokers could lead to heightened market volatility.

There was little evidence of this on markets for CME futures such as U.S. crude or wheat on Monday.

But volumes on ASX Ltd's Australian grain futures leapt on Monday, after slowing to a trickle last week, with January wheat trading a record quantity.

The CME said the ratio of the initial margin, paid when an investor has to meet a margin call, has been changed to zero versus the maintenance margin.

Initial margins are higher than maintenance margins to provide an additional buffer against losses.

For example, the maintenance margin on 2011 Nymex crude oil contracts is $6,000, and the initial margin is $8,100, according to the CME website.

The margin reduction for MF Global clients is aimed at providing "market relief to customers whose accounts have been disrupted by this event," the Chicago-based CME said in a statement on November 5.

ICE, which operates the London-based ICE Futures Europe, said that ICE Futures U.S. was temporarily lowering the initial margin rate for speculative accounts to a level equal to the maintenance margin rate for all contracts.

(Additional reporting by Emma Farge, Christopher Johnson, Silvia Antonioli, Susan Thomas and Maytaal Angel in LONDON and Antonita Devotta in BANGALORE; Editing by Jane Baird)

Electricals retailer Best Buy Co Inc will pay $1.3 billion to buy its British partner Carphone Warehouse Group Plc out of a fast-growing U.S. mobile phone venture, while abandoning plans for a chain of European megastores.

General Motors is on track to double its annual tally to 5 million vehicles in China by 2015 despite slowing growth in the world's largest auto market, its China chief said.

The Conference Board releases at 10 a.m. ET its employment trend index for October. In the previous report, the index read 101.0.

The Federal Reserve will issue consumer credit numbers at 3 p.m. ET. Economists forecast consumer credit to rise $5 billion, versus a $9.5 billion drop in August.

CME Group and IntercontinentalExchange Inc moved over the weekend to limit the fallout from the MF Global Holdings Ltd bankruptcy on futures markets by lowering margin requirements on some accounts.

European shares fell 1.7 percent in early trade on Monday as concerns shifted to Italy and whether Rome can avoid being dragged further into the euro zone debt crisis.

A critical Italian parliament vote on Tuesday to debate austerity cuts has become a test of Prime Minister Berlusconi's government, with the opposition also preparing a motion of no confidence in the leader.

Greek Prime Minister George Papandreou sealed a deal with the opposition on a crisis coalition to approve an international bailout, but details remain thin despite an EU ultimatum for Athens to get serious about tackling its problems.

Euro zone finance ministers will speed up work on strengthening their bailout fund to enhance its market credibility by the end of November, a month early, as concern grows about Italy, euro zone officials said.

U.S. stocks fell on Friday, ending four weeks of back-to-back gains. The Dow Jones industrial average dropped 61.23 points, or 0.51 percent, to 11,983.24. The Standard & Poor's 500 Index lost 7.92 points, or 0.63 percent, to 1,253.23. The Nasdaq Composite Index fell 11.82 points, or 0.44 percent, to 2,686.15.

(Reporting by Atul Prakash; Editing by David Holmes)