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Mainland shares listed in Hong Kong .HSCE fell more than 4 percent after China reported gross domestic product eased to 9.1 percent for the quarter, slightly below forecasts of 9.2 percent, indicating the world's second-largest economy expanded at its slowest pace since the second quarter of 2009.

Whilst the numbers did not greatly increase fears of a "hard landing," they prompted investors to lock in gains from last week, when the country's sovereign wealth fund sparked a rally by buying shares of its big four banks.

"The pace of moderation has so far been measured, and today's numbers reinforce our view that a soft landing is in sight," said Connie Tse, Economist at Forecast in Singapore.

As risk aversion returned, investors rushed to seek protection in the options market against losses, with the CBOE Volatility index VIX .VIX -- a 30-day risk forecast of volatility in the S&P 500 -- rising 18.2 percent to 33.39 on Monday, its highest one-day jump since August.

In Asian credit markets, spreads on the iTraxx Asia ex-Japan investment grade index, another gauge for whether investor risk appetite is returning, widened by about 13 basis points on Tuesday, after tightening by about 26 points over the past week on hopes of progress in Europe.

Germany's finance minister, Wolfgang Schaeuble, said on Monday that even though European governments would adopt a five-point platform to address the crisis, a definitive solution would not be reached at the October 23 European Union summit.

This came in the heels of a Group of 20 meeting of finance ministers in Paris the past weekend, which had raised expectations that European banks would be recapitalized, and the region's bailout fund expanded to deal with a potential debt default by Greece.

"Although markets were not expecting the debt crisis to be resolved overnight, shares prices are likely to succumb to profit-taking after a rally," said Hiroichi Nishi, equity general manager at SMBC Nikko Securities.

MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell 2.6 percent, with the materials sector .MIAPJMT00PUS in the MSCI index slumping more than 3 percent.

The Nikkei stock average .N225 fell 1.3 percent, while Australian shares were down 1.8 percent.

World stocks, as measured by the MSCI's all-country world equity index .MIWD00000PUS, fell 1 percent, and U.S. stocks suffered their worst loss in two weeks on Monday, with the Dow Jones industrial average .DJI down 2.12 percent.

The MSCI index has recovered from 15-month lows by more than 10 percent in the past nine days, on growing expectations Europe was finally accelerating efforts to resolve its debt crisis.

"Don't expect a long running leg of good news. There isn't a trend right now," Colin Bradbury, Daiwa Capital Markets' regional chief strategist for Asia ex-Japan, said of the headlines news about the European debt issues.

Given that this is the fourth quarter, and very strong potential for a rebound in some stocks, investors may be tempted to lock in short-term profits to add whatever return they can get, he said.

Concerns about the euro zone sovereign debt problems hurting sentiment, a slowdown in the Asian regional growth and an expected downgrade to earnings forecasts over the next 3-6 months will likely continue to pressure the markets, he said.

Asian shares are extremely cheap, and could spur buying and limit the downside from here, but it is currently "too soon to be jumping back into high beta cyclicals," he said.

Technicals were also turning bearish, suggesting risk aversion remains.

The euro failed to breach a September high against the dollar around $1.39 on Monday, while the Australian dollar has faced resistance at its 200-day moving average of $1.03792.

The S&P 500 also turned around from its August 31 high around 1,230.

The euro fell from a one-month high against the dollar of $1.39148 hit on Monday.

Oil edged up, with Brent crude gaining 0.1 percent to $110.29 a barrel and U.S. crude futures also up 0.1 percent at $86.47.

Retreating appetite for risk benefited government bonds, with 10-year U.S. Treasuries gaining 23/32 in price to yield 2.17 percent on Monday.

But other assets perceived as safe-haven such as gold were lacklustre, with spot gold was nearly flat and the dollar index .DXY fell 0.2 percent.

(Additional reporting by Hideyuki Sano; Editing by Kavita Chandran)

Gross domestic product rose 9.1 percent in the third quarter from a year ago, moderating from the second quarter's 9.5 percent. It was slightly below market forecasts for a 9.2 percent expansion.

The data shows China is not impervious to the fallout from the euro zone's debt crisis and highlighted the risks that the world's second-biggest economy faces if its top trading partner, Europe, does not resolve festering debt problems.

But the relatively moderate easing of growth does not signal a shift in monetary policy in response, Connie Tse, economist at consultancy Forecast in Singapore, said.

"Based on the view that China should have acted more aggressively in the beginning of the year with its interest rate policies and that price pressures are still a problem, absent a hard-landing scenario, we do not see scope for interest rate cuts in the near-future," Tse said.

Shares in resource-rich Australia .AXJO extended losses on the day to as much as 2 percent after the GDP data, with major miners who supply China sliding between 3 percent and 9 percent.

Fixed asset investment -- the core driver of China's rampant economic growth -- continued at a robust pace, chalking up growth of 24.9 percent in the January-to-September period, slightly ahead of forecasts of 24.8 percent.

Trade data out last week showed annual growth in Chinese exports to Europe more than halved from August, with the year-on-year rise in China's overall exports at a seven-month low.

China's economy is facing increasing uncertainty at home and abroad, China's Statistics Bureau said in a statement alongside the data release. It called for the maintenance of stable economic policies.

Slower growth could help some of that stabilization process as it implies some softening of price pressures for inflation-wary officials in Beijing.

China's inflation, albeit easing, eased to 6.1 percent in September, close to near three-year highs of 6.5 percent in July and well over Beijing's 2011 target of 4 percent.

To combat rising prices and prevent them from stoking social unrest, Beijing raised interest rates five times and banks' reserve requirements nine times in the past year.

However, the darkening world economic outlook has forced Beijing to stand pat on policy since July, with some analysts betting that authorities may even loosen policy to support growth if needed.

To prop up the economy, analysts say China may opt to slightly loosen credit controls or even cut banks' reserve requirements from record highs to encourage more lending to firms, especially the smaller ones.

"China has over tightened its policy since May. That has increased the risks of a hard landing, as global economic growth also slowed since the second quarter," said Dong Xian'An, chief economist at Peking First Advisory.

"That risk of sharp economic slowdown in China still exists. We expect Chinese economic growth to slow down to around 8.6 percent in the fourth quarter," Dong added.

But few analysts expect China to cut rates anytime soon given stubborn price pressures.

"I don't think they will make any move (in rates) in the near term. Then maybe after a few quarters, toward the middle of next year, if everything is OK, I think they will continue to hike interest rates, not cut interest rates," said Ting Lu, economist at Bank of America-Merrill Lynch in Hong Kong.

(Editing by Ken Wills)

Jeffrey Lacker, the Richmond Fed's hawkish president, acknowledged that inflation is likely to ebb in coming months as pressures from high energy and commodity prices ease. But he warned that inflation remained a threat.

"My sense is that we should not be adding monetary stimulus at this point," Lacker said in response to questions from reporters. "A case could be made that withdrawing stimulus may be warranted soon."

Lacker, who was speaking in Salisbury, Maryland, rotates into a voting spot on the Fed's policy-setting panel next year.

Speaking in Detroit, Charles Evans, the Chicago Fed's dovish chief, said some temporary increase in inflation may be the price the nation must pay if Fed policy is to reduce joblessness.

The Fed should step up its campaign to boost what he called a withering economy with a vow to keep interest rates at zero until the jobless rate falls below 7 percent, Evans said.

If that does not work fast enough, the Fed should return to buying bonds to push down long-term rates, he said.

"Given how badly we are doing on our employment mandate, we need to be willing to take a risk on inflation going modestly higher in the short run if that is a consequence of policies aimed at lowering unemployment," said Evans, who has a policy-setting vote this year.

"Rather than fighting the inflation ghosts of the 1970s, I am more worried about repeating the mistakes of the 1930s," when the Fed failed to see that its monetary policy was unduly restricting growth, he said.

The central bank last month committed to selling $400 billion in short-term Treasuries in order to buy longer-dated government bonds. The move, known as Operation Twist, drew three dissents, as did a Fed promise in August to keep rates low through at least mid-2013.

While Lacker argued that such open dissent was a sign of healthy internal debate, not a fractured central bank, Evans suggested that calls by fellow policymakers for tighter rather than looser monetary policy may be undercutting the Fed's efforts to stimulate the economy.

"Financial markets are going to look at the entire breadth of the commentary and come up with their own assessment of what that means for the probability of a premature exiting from our current stance," Evans told reporters after his speech. "To the extent that they put more weight on that, that means that we are not going to be as accommodative as I believe our current intentions are."

To emphasize the severity of the employment situation, Evans included in his otherwise pedestrian slides an "emoticon" with flames coming out the top of the head.

The Fed could keep inflation in check by watching the medium-term outlook, he said. If the inflation outlook rose above 3 percent, he said, the Fed would start tightening policy, even if the jobless rate has not fallen below 7 percent.

Evans' remarks amounted to the strongest call yet for more monetary policy easing just weeks before the central bank's policy-setting panel next meets, on November 1 and 2. Fed Chairman Ben Bernanke is due to speak on Tuesday.

The U.S. economy has remained anemic this year despite hopes for a pick-up in the pace of expansion. Gross domestic product expanded under 1 percent in the first half of the year, while unemployment has remained stuck above 9 percent for several months.

This backdrop, coupled with financial market strains emanating from Europe, have kept up the pressure on the Fed to continue providing support to the economy, despite its already unprecedented efforts to that effect in response to the Great Recession.

The Fed has not only slashed benchmark interest rates to effectively zero, but also purchased some $2.3 trillion in government and mortgage-backed securities to support a fragile recovery.

If the Fed adopts a policy trigger tied to the unemployment rate, Evans said, he would also favor adopting a formal inflation target of 2 percent to further cement expectations.

(Reporting by Ann Saphir in Detroit and Pedro Nicolaci da Costa in Salisbury, Md.; Editing by Diane Craft, Gary Hill)

IBM, a bellwether for the IT hardware sector with its global span and diverse clientele, needed to beat forecasts significantly to ease investors' concerns, analysts said.

International Business Machines Corp's total services signings -- an indicator of future growth -- climbed to $12.3 billion in the third quarter, at the low end of expectations of $12 billion to $13 billion.

Revenue rose 8 percent to $26.2 billion, marginally softer than an average forecast of $26.26 billion.

IBM, which has consistently beaten Wall Street forecasts, raised its full-year diluted earnings forecast to at least $13.35 per share, from its prior estimate of at least $13.25. But that was just pennies above the Wall Street target of $13.32, according to Thomson Reuters I/B/E/S.

"Whatever IBM could control, they did a great job. But they are not immune to macro conditions. Financial conditions are tough," said Global Equities Research analyst Trip Chowdhry.

"People don't want to cancel projects, but projects are getting delayed. Sales cycles are getting elongated. New projects are getting smaller budgets."

Buttressed by recurring revenue that helps keep IBM's results steady in strong and weak economies, the company's shares have outperformed the broader market. They are up about 28 percent this year versus the Standard & Poor's 500 index's 4 percent dip.

Some analysts said Monday's showing, in barely meeting expectations, may have triggered profit-taking. Its stock fell 3.7 percent to $179.70 in extended trade after closing down 2.07 percent on the New York Stock Exchange.

"The company exceeded published expectations, but the underlying expectations were even higher," Annex Research analyst Bob Djurdjevic said. "Investors who have been very bullish on IBM are probably taking some profits now."

U.S. economic concerns and a worsening European financial crisis have hurt demand. But companies such as IBM that sell hardware and software for data centers powering the Internet have remained resilient.

IBM reported a third-quarter profit, excluding items, of $3.28 per share, up 15 percent year over year, just pennies above expectations for $3.22.

(Reporting by Noel Randewich; Editing by Richard Chang)

Citigroup, the third-largest U.S. bank by assets, reported net income of $3.77 billion, or $1.23 per share, up from $2.17 billion, or 72 cents per share, a year earlier.

The latest results included a pre-tax gain of $1.9 billion, or 39 cents per share, due to the bank's widening credit spreads during the quarter.

Excluding that gain, Citi earned $2.6 billion, or 84 cents per share.

It was not immediately clear if the results were comparable with analysts' average earnings forecast of 84 cents per share, according to Thomson Reuters I/B/E/S.

The bank -- which received two U.S. government bailouts at the height of the financial crisis -- is seeing its problem loan portfolio shrink.

Nonaccrual loans fell to $7.95 billion from $12.46 billion in the same quarter last year.

The bank's share price has fallen about 40 percent this year, in line with declines for other large banks.

Citigroup shares rose 1 percent in premarket trading to $28.67 after the quarterly results were announced.

(Reporting by Joe Rauch in Charlotte, N.C.; editing by John Wallace)