Stocks were weaker in most major Asian markets Wednesday, with Turkey's financial crisis showing little sign of abating as Ankara hiked tariffs on several US goods in a tit-for-tat move.
Following a day of gains on Tuesday, investors were again in a bearish mood, driving down markets in Tokyo, Hong Kong and Shanghai, but the Turkish lira was spared the freefall of recent sessions.
The main Japanese market, the Nikkei 225, erased early gains to close 0.68 percent down on the day, giving back some of the ground made on Tuesday when it jumped by more than two percent.
The Hang Seng in Hong Kong was off more than 1.5 percent and the losses were even deeper in Shanghai, which was in the red by more than two percent as disappointing economic data continued to weigh on the market.
The Turkish lira avoided the kind of dizzying drops seen in recent days but still experienced some frantic trading when Ankara announced a rise in tariffs for certain US imports.
Turkey's vice president said the hikes were ordered "within the framework of reciprocity in retaliation for the conscious attacks on our economy by the US administration", as the war of words between the two NATO allies intensified.
Rodrigo Catril, senior foreign exchange strategist at National Australia Bank, said the Turkey crisis was likely to go on for some time.
"It is hard not to see the lira remaining under pressure until we see a material fiscal restraint to cool down the economy, along with a measurable lift in rates by the central bank and a diplomatic resolution to US tensions," said the analyst.
The Turkish unit had been under pressure for weeks over growing concerns about the health of the economy but the currency slumped on Friday and Monday, when US President Donald Trump announced Washington was ramping up aluminium and steel tariffs.
In late Asian trading, the lira was at 6.2050 against the dollar, having recovered significantly from the record lows of 7.24 seen on Monday.
Traders fretted that Turkey's woes could spark contagion into other emerging currencies and also that banks in advanced nations could suffer due to exposure to the Turkish economy.
"While the lira is stabilising, investors are still concerned that the crisis will spread to other emerging economies and currencies," said Hikaru Sato, senior technical analyst at Daiwa Securities.
"Trading is expected to remain nervous for now."
However, not all was doom and gloom in Asian markets, with Seoul's Kospi and the main Australian market up around 0.5 percent.
- Key figures around 0900 GMT -
Dollar/Turkish lira: DOWN at 6.21 lira from 6.53 lira early Wednesday
Euro/Turkish lira: DOWN at 7.02 lira from 7.43 lira early Wednesday
Euro/dollar: UP at $1.1339 from $1.1322
Pound/dollar: UP at $1.2720 from $1.2698
Dollar/yen: DOWN at 111.22 from 111.24 yen
Tokyo - Nikkei 225: DOWN 0.7 percent at 22,204.22 (close)
Hong Kong - Hang Seng: DOWN 1.6 percent at 27,323.59 (close)
Shanghai - Composite: DOWN 2.1 percent at 2,723.26 (close)
Oil - Brent Crude: DOWN 8 cents at $72.18 per barrel
Oil - West Texas Intermediate: DOWN 13 cents at $66.64 per barrel
New York - Dow Jones: UP 0.5 percent at 25,299.92 (close)
London - FTSE 100: DOWN 0.4 percent at 7,611.64 (close)