HONG KONG (AFP) - Asian markets were mixed on Wednesday after Cypriot lawmakers comprehensively rejected a plan to tax savings as part of a crucial bailout deal, amid fears over the euro zone financial system.
The euro rebounded from morning losses to climb against the yen and dollar as European leaders sought to sooth investor concerns, saying they were willing to work with Nicosia to help it avoid bankruptcy.
Sydney fell 0.40 per cent, or 20.1 points, to 4,967.3 while Seoul lost 0.97 per cent, or 19.15 points, to 1,959.41.
Bargain hunters moved in to send Hong Kong up 0.97 per cent, or 214.58 points, to 22,256.44, while Shanghai surged 2.66 per cent, or 59.94 points, to 2,317.37.
Tokyo was closed for a public holiday.
On Tuesday, MPs rejected a proposal to impose a levy on savings as part of a deal agreed with international creditors for a €10 billion (S$18.9 billion) rescue.
The plan had been to charge 6.75 per cent for deposits of €20,000-100,000 and a 9.9 per cent tax on anything above that.
Savings of up to €20,000 would have been exempt.
Asian markets slumped on Tuesday after an initial deal was struck at the weekend that included a tax on all savers.
The €5.8 billion the proposal would have raised was crucial to Nicosia getting the full rescue. With that now in doubt, Cyprus must now find other ways to raise cash to repay its debts.
However, while Tuesday's events raised fears that the country could exit the euro zone, analysts said they soothed fears that such levies could be introduced in other troubled euro zone countries, which could have hammered confidence in the region.
Mr Stephen Wood, chief market strategist at Russell Investments, told Dow Jones Newswires: "We're watching very closely, but at present we don't think Cyprus is a game-changer in Europe.
"We're looking at financial-system indicators in Italy, Spain, Portugal, Greece and also bank data to see if there's a run or even a jog on banks in those countries. We don't see that just yet."
Dutch Finance Minister Jeroen Dijsselbloem said in a statement: "I confirm that the Eurogroup (of finance ministers) stands ready to assist Cyprus in its reform efforts" given Monday when it offered easier bank levy terms to reduce the impact on smaller savers.
The European Central Bank (ECB) also said it would continue to provide financial support for troubled Cypriot banks, a key step to allow all sides a little more time to try to find a way out of the impasse.
But Mr Stan Shamu, market strategist at IG Markets in Melbourne, offered a word of warning, saying: "The Cyprus issue is far from over.
"I don't think it will be a situation where the ECB has stepped in and we don't have to worry about it." Cypriot Finance Minister Michalis Sarris was due to contact Russian officials later in the day as the government seeks other ways of finding the money such as a bond issue or bank restructuring.
On currency markets, the euro climbed hopes that the crisis can be overcome.
In afternoon trade, the single currency bought US$1.2898 (S$1.61), down from US$1.2881 in New York late on Tuesday, while it sat at 122.93 yen (S$1.62) from 122.59 yen.
The dollar fetched 95.29 yen from 95.23 yen.
On Wall Street markets were mixed, with the Dow nudging up 0.03 per cent, the S&P 500 falling 0.24 per cent and the Nasdaq off 0.26 per cent.
US traders took heart from expectations that the Federal Reserve could on Wednesday deliver an improved view of the world's biggest economy.
Data on Tuesday showed that new housing starts rose 28 per cent in February, underscoring strength in the crucial US real estate sector.
The Fed's policy committee "may sound more upbeat this time around amid the more broad-based recovery", said Mr David Song of DailyFX in the United States.
Oil prices rose, with New York's main contract, light sweet crude for delivery in April, gained 73 cents to US$92.89 a barrel in the afternoon and Brent North Sea crude for May was up 62 cents at US$108.07.