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Stocks have slipped and bond yields fallen on worries a visit to Taiwan by US House of Representatives Speaker Nancy Pelosi will further harm relations between China and the United States.
Investors sought safer assets after China threatened repercussions if Pelosi visited the self-ruled island, which Beijing claims as its territory.
US long-term Treasury yields dropped to a four-month low, while euro zone bond yields fell.
The Japanese yen was on track for a fifth straight day of gains versus the US dollar.
The greenback also gained against a basket of currencies, while crude oil sank as investors worried over signs of a global manufacturing downturn.
The MSCI world equity index, which tracks shares in 47 countries, fell 0.5 per cent. The broad Euro STOXX 600 shed one per cent, deepening losses during morning trade.
Wall Street stocks were set to fall around 0.8 per cent, futures gauges showed.
Pelosi was expected to arrive in Taipei later on Tuesday (Wednesday AEST), with several Chinese warplanes flying close to the median line dividing the Taiwan Strait, a source told Reuters.
China has repeatedly warned against Pelosi going to Taiwan, but Washington said on Monday it would not be intimidated.
"It's all about the Taiwan threat," Robert Alster, chief investment officer at Close Brothers Asset Management, said.
"There's no way you can say it's not moved up the geopolitical agenda."
The Taiwan issue added to a sense of unease sparked by China, Europe and the United States on Monday reporting weakening factory activity, with that in the United States decelerating to its lowest level since August 2020.
The benchmark 10-year US Treasury yield fell to 2.52 per cent, its lowest in four months, also benefiting from bets a slowdown could spur the Federal Reserve to ease off the policy-tightening pedal.
Germany's 10-year government bond yield fell 4.5 basis points to 0.72 per cent, after hitting its lowest since early April. The fall has come as investors scale back expectations for European Central Bank rate hikes on recession fears.
Brent futures edged down to $US99.14 a barrel after losing almost $US4 overnight. US West Texas Intermediate futures also eased to $US92.94, extending Monday's almost $US5 slide.
MSCI's broadest index of Asia-Pacific shares retreated 1.3 per cent. Taiwan's stock index dropped 1.6 per cent, while Chinese blue chips tumbled two per cent.
The flight for safety played out in currency markets, too.
The US dollar slid to as low as 130.40 against the Japanese yen, a level not seen for almost two months. It was last down 0.5 per cent. Against a basket of currencies, the dollar rose 0.3 per cent to 105.62.
The Taiwanese dollar slipped to its lowest level in more than two years on the weaker side of 30 per US dollar.
The Australian dollar fell 1.4 per cent to $US0.69910, extending a retreat following the Reserve Bank of Australia's move to increase the cash rate by 50 basis points.
"The Aussie has been underperforming other major currencies lately given global growth concerns, so it really needed a hawkish surprise to reignite its recovery from two-year lows," Sean Callow, a currency strategist at Westpac in Sydney, said.
"Instead, it got the RBA leaving the door wide open to slowing the pace of tightening at future meetings."
Cryptocurrencies, a barometer for risk appetite, also fell, with bitcoin slipping 1.6 per cent to $US22,896.