ANOTHER day of jitters over the deepening Greek crisis and caution ahead of the United States Federal Reserve meeting sent Asian equities into a tailspin for a second day.
Losses on Wall Street and in Europe overnight set the stage for the Asian sell-off, which was led by China. The Shanghai Composite Index plunged 3.5 per cent on fears that a flood of initial public offerings (IPOs) could soak up funds, while the Shenzhen Composite fell 3.6 per cent.
Political tensions in Hong Kong sent the Hang Seng falling 1.1 per cent and the Hang Seng China Enterprises Index down 2.7 per cent.
Singapore shed 0.75 per cent, breaching a key 3,300 support for the second time in a week.
"Chinese equities continued to fall, as investors again worried that a huge liquidity lock-up ahead of the subscriptions for 25 IPOs may drain interest from existing shares. For now, it looks like the Chinese stock market may grind sideways until the locked- up IPO funds flow back into it... around June 24," IG market strategist Bernard Aw said.
Recent tightening moves on margin lending have also let some air out of the red-hot Chinese rally, he said.
"There was also news that 94 per cent of Shanghai Composite shares are trading at higher valuations compared to the index."
Currency markets were more stable, with the euro holding up in volatile trade against the greenback despite markets bracing themselves for a "Grexit" - Greece's exit from the euro zone.
The US dollar, meanwhile, firmed ahead of the outcome of the Fed's two-day policy meeting, which is now under way.
The Singdollar remained flat at $1.3462 against the greenback. Investors globally will be watching Fed chair Janet Yellen's comments for clues on when interest rates could be raised.
Mr Aw added that fears over fallout from the Greek default are overblown. "According to Nomura, international banks' exposure to Greece had fallen 79 per cent to US$46 billion (S$62 billion) as of last year from US$217 billion in 2009," he said.
"So, it appears that a Greek debt meltdown may not be catastrophic for the European Union, but why did global equities react in such an ostentatious manner?
"The worry lies in the possibility that the EU's credibility may suffer substantially should Greece be allowed to go into cardiac arrest. Furthermore, a Grexit may set the stage for other vulnerable countries such as Spain and Portugal to consider whether staying in EU is right for them," said Mr Aw.
Meanwhile, uncertainty around Greece failed to spark a flight to the traditional safe haven of gold, which fell about 0.3 per cent to US$1,182.53 an ounce yesterday. Gold slid against a strengthening dollar.
Bullion has not made much headway in recent months, due to rate-hike uncertainty. Higher rates would crimp demand for non-interest-paying bullion.