HONG KONG (Nikkei Markets) -- Asian shares outside of Japan extended losses on Tuesday amid tensions in the Middle East and uncertainty over the U.S. Federal Reserve's monetary policy outlook.
The Nikkei Asia300 index declined 1% to close at 1,269.98. Chinese companies were again among the biggest contributors to the losses on the gauge. The Hang Seng China Enterprises Index fell 1.2%, adding to yesterday's 0.6% fall after disappointing August China activity data. China Construction Bank fell 1.6%, leading lenders lower. Ping An Insurance Group dropped 1.3% and Air China declined 2.4%. The losses on Air China came despite a 5.7% year-on-year increase in passengers carried last month. Ping An Insurance reported yesterday that January-August accumulated gross premium income of life insurance business was 347.5 billion yuan ($49 billion).
The losses on Asian equities came after a weak session on Wall Street following the attacks on a Saudi Arabian oilfield over the weekend. The attack trigged a jump in crude oil prices and prompted worries over a confrontation between Washington and Tehran. While Iran-backed Yemeni Houthi rebels took responsibility for the attack, the U.S. blamed Iran.
According to a Reuters report, Saudi Arabia yesterday said that Iranian weapons were used in attacks and a spokesman for the Saudi-led coalition in Yemen that's batting Houthi said preliminary results of an investigation into the attack did not indicate that it originated in Yemen.
Stephen Innes, Asia Pacific market strategist at AxiTrader, said that traders were "nervously evaluating the possibility of a joint military response from the U.S. and Saudi Arabia" and assess the economic damage of a possible lengthy oil price shock.
Brent crude soared about 15% yesterday to close at a near four-month high on the back of the attacks.
The jump in crude prices prompted traders to relook at their assumptions over the extent of Fed easing. Odds of a quarter percentage rate cut by the Fed tomorrow have fallen to close to 64% from nearly 100% a year ago.
The Fed's two-day meeting begins later Tuesday, and the decision on interest rates will be released tomorrow after Asian markets close.
In other movers on the A300, Hong Kong rail operator MTR slid 1.3% after a train leaving the city's Kowloon area derailed.
China Eastern Airlines, followed Air China lower declining 2.7% despite a 6.5% increase in passenger traffic last month. Airlines shares have come under pressure this week amid the jump in crude prices.
Singapore Airlines ended 0.4% lower. The carrier reported a 6.5% increase in total passengers in August from a year ago.
Malaysian integrated oil services firm Sapura Energy jumped 5.4%, buoyed by yesterday's surge in crude prices. Financial markets in Malaysia were closed on Monday.