Stock markets were hurt Tuesday by an interest rate increase in China, elevated oil prices, concerns about Japan's nuclear crisis and another downgrade of Portugal's credit rating. Investors were preparing, meanwhile, for the publication of the minutes to the last rate-setting meeting of the U.S. Federal Reserve.
Japan's benchmark Nikkei 225 index led the retreat, dropping 1.1 percent to 9,615.55, amid frantic and unsuccessful efforts to control a radioactive leak at a nuclear plant damaged by the March 11 monster earthquake and tsunami.
The other big source of geopolitical tension, the conflict in Libya, kept oil prices high.
The apparent stalemate in the country, which accounts for a little under 2 percent of daily oil production, pushed the oil price on the New York Mercantile Exchange to end the day at $108.47 on Monday, the highest close in 30 months. By late morning London time on Tuesday, it was down 77 cents a barrel at $107.69.
High energy prices are making investors cautious about stock markets, particularly after the recent rally. The S&P 500 in the U.S. has posted its best first-quarter advance since 1998.
In Europe, the FTSE 100 index of leading British shares was down 0.4 percent at 5,994 while Germany's DAX fell 0.3 percent to 7,153. The CAC-40 in France was 0.6 percent lower at 4,021.
Wall Street was also poised for a modest retreat at the open _ Dow futures were down 30 points at 12,307 while the S&P 500 fell 5. points to 1,324.
While Libya and Japan will continue to be of interest in the markets over the rest of the week, central banks are taking center stage.
The Reserve Bank of Australia kicked off a raft of statements this week earlier by keeping its benchmark rate unchanged at 4.75 percent, followed soon after by the decision by the People's Bank of China to raise its key interest rate by a quarter percentage point as it looks to fight inflation. The hike, once again, was delivered when China was on holiday.
While the European Central Bank is widely expected to raise interest rates too, there's more uncertainty about what the Bank of England will do, with most economists predicting it will leave borrowing rates unchanged despite a forecast-busting services sector survey.
The Bank of Japan also meets this week and investors will be looking to see if it enacts any further policy measures. The central bank has pumped billions of yen into the economy as it tries to keep liquidity flowing through the system in the wake of the disasters. It has also received international support to stem the export-sapping appreciation of the yen.
The intervention has clearly helped. By late morning London time, the dollar was up 0.2 percent on the day at 84.39 yen _ way higher than the record low of 76.53 yen.
Meanwhile, the euro, which has gained a lot of ground over the past few weeks as traders priced in the growing likelihood that the ECB will tighten policy, was down 0.5 percent at $1.4161 as investors continue to fret about Portugal and whether it will have to get a financial lifeline. The country's borrowing costs hit fresh euro-era highs Tuesday after Moody's downgraded its bond rating by a notch to Baa1 and warned that another cut may be in the offing.
"The euro retreated on the announcement, but remains largely driven by ECB rate hike anticipation for the moment," said Chris Walker, an analyst at UBS. "Nonetheless, the downgrade serves as a timely reminder that the structural concerns in Portugal remain."
The Federal Reserve will also be in the spotlight later Tuesday when the minutes to the last rate-setting meeting are published. Investors will be looking to see if there are any signs of the central bank ending its current $600 billion monetary injection before June, and whether interest rates may start to rise sooner than the markets expect.
If the minutes do suggest that the Fed is sounding a more hawkish tone, analysts said the dollar could garner some support on views of higher future returns. Stocks may also suffer as higher interest rates tend to weigh on growth.
Ronan Carr, an analyst at Morgan Stanley, said equities will not like it when the monetary stimulus ends.
"Combined with the other headwinds we see _ peaking leading indicators, margin pressures and inflation's impact on growth _ it suggests to us a more difficult phase ahead for equities," Carr said.
Pamela Sampson in Bangkok contributed to this report.