Global shares have eased as investors took profit on the gains from the past two weeks after comments from two Federal Reserve officials injected a note of caution over the United States rate outlook, knocking equities, commodities and other risk assets.
The MSCI All-World index eased 0.1 per cent but remained in sight of Monday's three-week high, while the dollar - a gauge of investor risk appetite - held steady against a basket of major currencies.
In the past six weeks, even as cases have surged around the country, China has dismantled its zero-COVID policy, which has given markets a bumpy ride as investors weighed up the economic benefits of reopening against the impact of activity from the wave of infections.
Adding to that has been a sense of optimism that inflation has peaked, especially in the United States, and, as such, the Fed will not have to raise rates as much as many had feared.
However, with consumer price pressures still well above the central bank's target of two per cent, two Fed officials on Monday issued a stark reminder that interest rates will have to keep rising, no matter what investors have priced in.
"The market is trying to get one step ahead of the Fed but it's not actually listening to what it's saying," CityIndex strategist Fiona Cincotta said.
"And the Fed is being quite clear with its message - that rates are going to push higher and they're going to stay higher for longer.
"If we look at expectations of inflation later this week - the big focus - core inflation is still expected to remain high.
"It doesn't matter which way you look at it. It's still higher than the target the Fed is aiming for," she said.
Consumer price data, due on Thursday, is expected to show headline inflation slowed to 6.5 per cent in December from 7.1 per cent in November.
The data could be key to setting expectations for what happens with rates at the Fed's next policy meeting and beyond.
San Francisco Fed President Mary Daly told the Wall Street Journal she would pay close attention to Thursday's data and both 25- and 50-basis point hikes were options for her.
Atlanta Fed President Raphael Bostic said his "base case" was for no rate cuts this year or next.
"The main theme overnight was cautiousness in the equity space as stocks pared gains after hawkish comments from two Fed officials," Commerzbank said in a note.
"Raphael Bostic and Mary Daly said the Fed would likely hike (interest) rates to above five per cent and hold them there for some time."
Fed Chair Jerome Powell addresses a conference on central bank independence later on Tuesday and investors will likely scour his remarks for any signal on monetary policy.
In Europe, equities opened in the red, with the STOXX 600, which on Monday hit its highest in eight months, down 0.7 per cent.
London's FTSE 100 lost 0.3 per cent, while Frankfurt's DAX fell 0.5 per cent.
US stock index futures eased 0.1 per cent, indicating Wall Street could open a touch lower.
The dollar carved out gains against the Australian dollar, which is highly sensitive to the Chinese economy and has gained 3.5 per cent in the past three weeks alone, based on the optimism around reopening.
The Aussie was last down 0.2 per cent at $US0.6903 ($A0.9981), while the offshore yuan lost 0.1 per cent against the dollar to trade around 6.7906.
It reached its strongest level since mid-August the previous day.
The dollar index eased 0.21 per cent.
The euro edged up 0.1 per cent, while the pound fell 0.1 per cent.
The yen rose 0.1 per cent against the dollar to 132.04, after data showed a faster pick-up in Tokyo inflation that could prompt the Bank of Japan to tighten monetary policy more quickly.
Strategists at BlackRock, the world's largest asset manager, on Tuesday said they expected the Chinese economy to grow by six per cent this year, which should cushion the global slowdown as recession hits developed-market economies.
But any bounce may be fleeting.
"We don't expect the level of economic activity in China to return to its pre-COVID trend, even as domestic activity restarts," Wei Li, who is global chief investment strategist for the BlackRock Investment Institute, wrote in a note.
"We see growth falling back once the restart runs its course."
Copper eased back from six-month highs as bullishness from China's emergence from COVID-19 was offset by concern about the risks of a broader global downturn.
London Metal Exchange copper futures were down 0.9 per cent at $US8785 ($A12,703) a tonne, having hit their highest in more than six months on Monday, while aluminum and zinc fell between 1-1.4 per cent.
Oil was under pressure from concern that China resuming more normal activity might not translate into a boom in demand.
"The social vitality of major Chinese cities is rapidly recovering and the restart of China's demand is worth looking forward to," analysts from Haitong Futures said.
"However, considering that the recovery of consumption is still at the expected stage, the oil price will most likely remain low and range-bound."
Brent crude futures were last down 0.6 per cent at $US79.16 ($A114.46) a barrel.
The oil price is about 2.3 per cent below where it was a year ago and 45 per cent below the highs of about $US139 ($A201) after Russia invaded Ukraine last February.