UPDATE: Asian Shares Trade Mostly Lower; China Shares Eyed

SINGAPORE -- Asian stock markets were mostly lower Tuesday with the closely-watched Shanghai Composite index moving in and out of the red a day after posting its biggest single-day percentage drop since November.

Metals and energy stocks were generally weaker, pacing a sharp retreat in commodities prices on Monday.

"Given how overheated Chinese stocks had been, this correction was inevitable, and some would say it was necessary," Tachibana Securities analyst Kenichi Hirano said, adding, "players will continue to monitor Chinese stocks."

The Shanghai Composite index was down 1.1% while Japan's Nikkei 225 was flat. South Korea's Kospi Composite was down 0.5%. In Hong Kong, the Hang Seng Index traded down 1.0%, while Singapore's Straits Times Index shed 0.4%.

Australia's S&P/ASX 200 was down 1.4%, and New Zealand's NZX-50 shed 1.5%, but both indexes traded off lows after the release of minutes from Australia's central bank meeting. The Dow Jones Industrial Average futures contract was up 4 points in screen trade.

The DJIA fell 2.0% or 186.06 points in New York Monday, marking its largest one-day point and percentage drop since July 2. The losses in U.S. stocks were broad-based with energy and materials counters down on a pullback in commodities prices while financials were also hit.

"A pause equals taking profits. The trading world is rightly locking in some of the outperformance of (assets associated with) risk and I expect this not to be a one-day event. This may well go on for weeks, yet I don't expect Wall Street down 2.0% every night," said Southern Cross Equities director Charlie Aitken.

Though the selloff has stoked fears of a severe correction for stock markets after the summer rally, some analysts said that recent corporate earnings and data still provided hope and that the markets' uptrend was not completely dead in the water.

"People still doubt the pace of the economic recovery. But we have witnessed positive earnings results and some economic data indicating a faster-than-expected economic recovery, so stocks will come back and rise after a cooling-down period," said You Seung-min at Samsung Securities in Seoul.

Energy stocks across the region were lower after continued concerns over hefty stockpiles and weak demand in the U.S. led to further losses in crude oil futures prices. Nymex light, sweet crude oil for September delivery settled down 1.1% or 76 cents at $66.75 per barrel, the contract's lowest level since July 29. On Globex, the contract was recently trading up 38 cents at $67.13 per barrel.

Korea's SK Energy was down 2.0%, Woodside Petroleum was 1.3% lower, Inpex was down 0.3% and Japan Petroleum was off 0.8%. In Hong Kong, Cnooc shed 1.6%.

Base metals prices fell sharply Monday on the London Metal Exchange as the selloff in equities sparked renewed risk aversion and the stronger dollar also pressured prices. The correction in prices came after strong gains for the metals complex in recent weeks.

LME three-month copper ended at $6,050 per metric ton, down $190 from the afternoon kerb on Friday. Aluminum ended at $1,960 per ton, down $30 while nickel finished at $19,100 per ton, down $475.

Metals recovered a little of Monday's losses in early Asian trade with LME three-month copper at $6,095 per ton, up $45 from the London kerb.

LME three-month aluminum was at $2,006/ton, up $46 since the London kerb lifted by worries that an incident at Russia's largest hydropower station could impact output at Russian aluminum smelters.

Metals and mining stocks were mostly lower. Sumitomo Metal Mining Co. was down 1.5%, Equinox Minerals had shed 4.0% and Oz Minerals was down 0.4%. Hong Kong-listed shares of Zijin Mining shed 2.5%, while its China-listed shares fell 1.7%. Rio Tinto and BHP Billiton wavered between positive and negative, tracking the Shanghai index, with their shares down 0.1% and down 0.2% respectively.

In Australia, shares retraced some losses, even briefly turning positive, after minutes from the central bank's August policy meeting showed the board agreed the economic outlook had improved and laid out details of how the central bank will judge when to tighten policy.

"While many Australian commentators believe the S&P/ASX 200 will outperform Wall Street due to our better economic fundamentals, a theory I sympathize with, the reality is Wall Street is the dog and we are the tail," Aitken from Southern Cross said.

James Hardie shares surged 20.4% after the company said its U.S. operations turned in a strong fiscal first-quarter result and it expected the operations would continue to perform well, guiding for full-year operating profits to come in at the top end of analysts' expectations.

In Hong Kong, Citic Pacific tumbled 9.0%, while Cathay Pacific shed 1.7% and Air China dropped 6.4% after Air China bought a 12.5% stake in Cathay from Citic Pacific, raising its holding to just under 30% from its current 17.5%. The declines may reflect view Citic sold its stake too cheaply or that Cathay was being undervalued.

In New Zealand, losses were broad-based with Auckland Airport down 0.6% while Fisher & Paykel Appliances lost 1.3%.

Malaysia's KLCI index was down 0.9%, Taiwan's Taiex shed 2.5%, Indonesian shares lost 3.4%, while Philippine stocks lost 1.5%.

In foreign exchange markets, the safe-haven yen was a little weaker as market players took a more sanguine view on the economic recovery than the pullback in stock markets was suggesting.

The U.S. dollar was at Y94.76 from Y94.44 late in New York trade on Monday, while the euro was regaining some ground at Y133.69 from Y133.06 and $1.4103 from $1.4085.

Lead Japanese government bond futures a little higher in directionless trade, despite a fairly strong result at an auction for five-year JGBs. The lead September JGB futures contract was up 0.06 points at 138.65. The 10-year cash JGB yield was flat at 1.340%.

Spot gold was trading at $937.70 an ounce, up $4.50 since the New York close. .