Asian shares slumped on Tuesday as sliding oil prices and political uncertainty in Greece forced investors out of riskier assets and into the safety of government bonds, while the euro wallowed near nine-year lows.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.4%, giving up half of the gains made since it hit a 10-month low on December 17.
Japan's Nikkei dropped 3%, its largest fall in almost 10 months while South Korean shares fell 1.7% to a 1-1/2-year low. Even high-flying mainland Chinese shares pulled back after hitting 5-1/2-year highs earlier in the session.
The S&P BSE benchmark Sensex tumbled by 466 points to 27,376.67 in the morning trade. Shares of refinery, realty, auto, capital goods and power declined sharply on heavy selling pressure.
Sensex resumed lower a 27,694.23 and dropped further to 27,330.47 before quoting at 27,376.67 at 10:00am, showing a loss of 465.65 points or 1.67% from its last close.
European shares were seen little changed, with many countries on holiday. Spreadbetters expected Britain's FTSE and Germany's DAX to open almost flat. The slide in oil prices showed little signs of abating in the new year, plunging as much as 6% on Monday to hit their lowest since spring 2009, as increased output of US shale oil has exacerbated a global supply glut.
"Falls in oil prices are going beyond many people's expectations. This will put pressure on the earnings of US energy firms," said Hirokazu Kabeya, senior strategist at Daiwa Securities.
US crude crashed below $50 a barrel on Monday while benchmark Brent tumbled under $53 after data showed Russian oil output at post-Soviet era highs and Iraqi oil exports near 35-year peaks.
They rebounded slightly on Tuesday with US crude last traded at $50.21, up 17 cents. Brent stood at $53.34 but that did little to dispel concerns that current low prices would squeeze many energy producers and hurt many assets with close links to energy.
The US S&P 500 had its worst day in almost three months on Monday, dropping 1.8%, with energy shares leading the decline.
Adding to the gloom was increasing speculation that Greece might be kicked out of the euro zone if a left-wing party that has vowed to end austerity measures and erase a big portion of its debt wins in January 25 elections, as widely expected.
Developments in Greece, however, have not hit other periphery euro zone bonds so far, with their yields stuck near record low levels as investors see limited risk of a collapse of the monetary union.
Part of the reason behind that stability is expectations that the European Central Bank could start buying government debt to shore up the economy as soon as this month.
The prospect of more policy easing from the ECB kept the euro at bay. The common currency last traded at $1.1956 after slipping into the $1.1860 area on Monday, reaching depths not seen since early 2006.
"The next possible targets for the euro will be around $1.18, the level when the common currency started and around $1.16, its November 2005 low. It could see further falls depending on the outcome of Greek election, or the euro zone's reaction to that, rather," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
Adding pressure on the ECB to do more, German inflation slowed to its lowest in over five years in December. The data came just days after ECB President Mario Draghi said the risks were growing that inflation would stay too low for too long.
As riskier assets came under pressure, prices of safe haven assets such as the yen and government bonds gained on flight-to-quality bids.
The yen strengthened 0.6% to 118.88 to the dollar from a low of 120.745 hit on Friday.
The 30-year US bond yield fell to a 2-1/2-year low of 2.592% on Monday and last stood at 2.601%.
Gold prices extended gains after 1% on Monday to trade at $1,206.60 per ounce.