In China, the CSI300 of top Shanghai and Shenzhen listings fell 0.6 percent to 2,258.5 while the Shanghai Composite shed 0.4 percent to close at 2,074.7. But light profit-taking followed Monday's rally in mainland markets after data showed China's banks lent more slowly than expected in November while the pace of total financing eased.
"It was definitely a choppy session," said a Hong Kong-based trader. "Regional investors were watching every tick on the Shanghai Composite." Traders and analysts said the that the focus now shifts to the US Fed, which begins a two-day meeting later on Tuesday. The Fed is expected to announce it will buy $45 billion per month of longer-dated Treasuries beginning in January to replace the Operation Twist programme, which expires on December 31.
Easing by major central banks globally to kickstart their economies has sparked a rush of capital into Hong Kong, prompting the territory's monetary authority to repeatedly intervene in currency markets to defend the HK dollar's peg. In the latest intervention, the Hong Kong Monetary authority sold HK$6.2 billion ($800 million) in Hong Kong dollars as the local currency hit the strong end of its trading range. Analysts expect steadily improving global economic data to keep supporting the flow of funds into Asia in 2013 as investors boost positions in risky assets.
"Asian and Japan equities will be one of the recipients of money flow out of Treasuries," said Michael Kurtz, chief Asia equity strategist at Nomura. "We are basically overweight all of north Asia at the expense of Southeast Asia and India where we are predominately underweight," said Kurtz.
Shares of Citic Pacific rose 3.9 percent and were the most actively traded stock on the Hang Seng after the company, mired in financing issues related to its Australian projects, tapped debt markets to raise up to $250 million. Insurer AIA, the top performing Hang Seng component after Citic, rose after the US Treasury said it had launched the sale of its remaining stake in American International Group.
On the mainland, the beleaguered white liquor sector got a lift after biggest producer Kweichow Moutai rebutted reports it used additives in its products. Shares of the company, which went untraded on Monday, were up 1.8 percent. Real estate stocks were weaker in China as investors locked in gains following the recent rally. Poly Real Estate lost 2.1 percent while China Vanke shed 1.1 percent. Volumes remained relatively healthy in Shanghai, suggesting retail investors, who were burned by nearly three years of weak markets, were slowly getting back into stocks.