World stock markets fell Tuesday, with Japan's benchmark tumbling nearly 3 percent, after weak U.S. manufacturing figures knocked confidence in a quick recovery from global recession.
Oil retreating from eight-month highs dragged commodity stocks lower in Asia while top manufacturers like Japanese automaker Toyota fell on the weak data. The dollar weakened after Russian President Dmitry Medvedev told a regional summit that the world needs new reserve currencies.
Indexes in big Asian markets such as Japan and Hong Kong have gained 40 percent or more since early March, powered by ample liquidity and signs the economic slump has leveled out.
But as the rally gathered pace, it became increasingly vulnerable to any evidence that a recovery wasn't unfolding as quickly as investors hoped.
Wall Street faltered overnight on one such sign, with the Dow Jones industrials posting its biggest drop in nearly a month.
A monthly index of manufacturing conditions around the New York region fell to minus 9.4 in June from minus 4.6 the previous month, underscoring that any recovery in the world's largest economy _ a critical market for Asian exporters _ will be tepid and slow.
"All the global stock markets have been overbought so the manufacturing data was a trigger, an excuse to sell and take some profit," said Peter Lai, investment manager at DBS Vickers in Hong Kong.
"I don't believe the economy will recover so fast," he said. "China and Asia will be the pioneers of the recovery but I don't see it happening until the first or second quarter of 2010."
As trading got under way in Europe, Britain's FTSE 100 was flat, while Germany's DAX fell 0.2 percent, and France's CAC 40 lost 0.1 percent.
U.S. stock index futures pointed to slight losses Tuesday on Wall Street. Dow futures were down 19 points, or 0.2 percent, to 8,600 while S&P 500 futures slipped 1.7, or 0.2 percent, to 917.70.
Earlier in Asia, Japan's Nikkei 225 stock average shed 286.79 points, or 2.9 percent, to 9,752.88 even as the central bank said the country's economic conditions "have begun to stop worsening" _ an improvement from its previous assessment that the economy had been "deteriorating."
The Bank of Japan also left its key lending rate unchanged at 0.1 percent, as expected.
"Although the pace of economic slump is slowing, the real economy has not improved that much," said Kazuki Miyazawa, market analyst at Daiwa Securities SMBC in Tokyo. "Many investors are still reluctant to buy stocks too aggressively."
Hong Kong's Hang Seng, meanwhile, slid 333.46, or 1.8 percent, to 18,165.50 and South Korea's Kospi dropped 0.9 percent to 1,399.15. Elsewhere, Australia's index lost 1.7 percent, Singapore retreated 1.5 percent and the Philippine market dived 3.8 percent.
Oil's decline hit commodity stocks with Chinese offshore oil producer CNOOC plunging 5 percent in Hong Kong and BHP Billiton, the world's biggest mining company, off 1.5 percent in Sydney trade.
Benchmark crude for July delivery recovered some of its early losses but remained under $71 a barrel in Asia, taking a breather from a three-month rally that has doubled the price of oil. The contract rose 21 cents to $70.83 by late afternoon in Singapore. Last week, it briefly rose above $73.
Automakers were hurt by the U.S. evidence that manufacturing continues to wilt amid anemic consumer demand. Toyota Motor Corp., the world's biggest automaker, fell 3.4 percent, and Honda Motor Co. retreated 4.1 percent.
In the U.S. on Monday, the Dow tumbled 187.13, or 2.1 percent, to 8,612.13, returning to a loss for the year. The broader Standard & Poor's 500 index dropped 2.4 percent to 923.72, and the Nasdaq composite index sank 2.3 percent, to 1,816.38.
In currencies, the dollar's recent strength faded, falling to 96.43 yen from 97.63 yen late Monday in New York. The euro rose to $1.3850 from 1.3776.
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Associated Press Writer Mari Yamaguchi in Tokyo contributed to this story.
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