Asian shares erased Wednesday's initial gains, swinging into negative territory as a spike in new coronavirus cases sent Hong Kong stocks tumbling on the first day of trading after the Lunar New Year holiday.
Almost every stock in Hong Kong fell, sending the Hang Seng index falling by more than 2 percent to its lowest level since December, with landlords, travel, casino, financial services and consumer goods stocks among the biggest decliners.
MSCI's broadest index of Asia Pacific shares outside Japan fell 0.52 percent.
However, Australian shares rose 0.57 percent, while Japan's Nikkei stock index rose 0.4 percent, partly because investors in these markets already had a chance earlier in the week to react to the virus outbreak, which has resulted in more than 100 deaths.
Oil futures extended gains in Asia after OPEC sources said the cartel wants to extend crude output cuts by three months to June, easing concern about excess supplies.
United States Treasury yields remained higher and safe-haven currencies held steady in a sign of some calm in financial markets, but the focus remained squarely on the virus and how investors would reprice riskier assets.
"The next three to five days will be maximum selling pressure because essentially markets had a benign view of the virus before the Lunar New Year," Sean Darby, global equity strategist at Jefferies in Hong Kong told Reuters news agency.
"Until the rate of cases starts to peak, markets are not likely to bounce."
In the offshore market, the yuan was little changed at 6.9615 per dollar. China's onshore markets are closed for the extended Lunar New Year holidays. Markets will resume trading on February 3.
US stock futures rose 0.14 percent in Asia on Wednesday. The S&P 500 rose 1.01 percent on Tuesday, rebounding from its worst daily decline in four months on Monday, as shares of Apple Inc ahead of its fourth-quarter results.
After the market closed, Apple reported better-than-expected profits for the fourth quarter and forecast revenue in the current quarter above Wall Street expectations, which lifted some Asian tech shares.
The yield on benchmark 10-year Treasury notes rose to 1.6666 percent versus a yield of 1.5821 percent on three-month Treasury bills in another sign that sentiment has stabilised.
The yield curve briefly inverted on Tuesday when 10-year yields fell below their three-month counterparts for the first time since October. An inverted yield curve has historically been an indicator of a looming recession.
Markets in Asia are likely to be subdued before the US Federal Reserve meeting later on Wednesday. The Fed is expected to reiterate its desire to keep rates unchanged at least through this year.
In currency markets, safer investments were in favour. The Japanese yen was little changed at 109.22 per dollar following a 0.2 percent loss on Tuesday. The Swiss franc, another popular safe-haven currency, traded at 0.9740 versus the dollar, close to its lowest in almost three weeks.
Sterling edged lower to $1.3021, on course for its fifth day of declines due to worries about Britain's trading relationship with the European Union.
Investors are also cautious in the run-up to a Bank of England policy decision on Thursday, which many analysts say is too close to call.
US crude rose 0.99 percent to $54.01 a barrel. Brent crude rose 0.96 percent to $60.08 per barrel.
OPEC wants to extend current oil output cuts until at least June from March, with the possibility of deeper reductions on the table if oil demand in China is significantly impacted by the spread of a new coronavirus, OPEC sources said.
SOURCE: News agencies
