SYDNEY - Asian share markets slipped early Wednesday as a relentless slide in oil prices wiped out an attempted rally on Wall Street and dealt a fresh blow to risk appetite.
US crude wallowed at its lowest since 2003 after the world's energy watchdog warned the market could "drown in oversupply". US crude futures CLc1 shed another 49 cents to a new trough at $27.97 in early trade, while Brent crude LCOc1 was quoted at $28.76 a barrel.
Equity markets reacted by reversing some of Tuesday's rare gains, and MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.3 per cent.
Japan's Nikkei .N225 fell 0.7 per cent, while Australian stocks lost 0.4 per cent.
Chinese markets had led the bounce on Tuesday with the CSI300 index .CSI300 up 3.0 per cent and the Shanghai Composite Index .SSEC rising 3.2 per cent.
That rally was puzzling to many given the economic news from China was hardly bright, and the International Monetary Fund cut its global growth forecasts for the third time in less than a year.
Dealers were left to cite speculation of further Chinese policy stimulus as a possible excuse.
China's central bank late Tuesday did reveal it would inject more than 600 billion yuan ($91.22 billion) into the banking system to help ease a liquidity squeeze expected before the Lunar New Year in early February.
Yet such a move is usual before the holidays and stopped well short of an actual cut in bank reserve ratios.
Whatever the rationale, the rally rolled into Europe, where the pan-regional FTSEurofirst 300 index .FTEU3 closed Tuesday 1.37 per cent higher.
Wall Street, however, saw early gains erased by the slump in US crude. The Dow .DJI ended up 0.17 per cent, while the S&P 500 .SPX rose a single point and the Nasdaq .IXIC eased 0.26 per cent.
The S&P energy sector alone sank .SPNY 2.17 per cent. Oil at 12-year lows stokes fears of deeper losses for energy companies and the risk some may fail to pay their debts.
Tom Porcelli, chief US economist at RBC Capital Markets, noted that polls of investors showed investors were more bearish on Wall Street than at any time since mid-1987.
"Perhaps characterizing the recent bout of negativity as being 'pervasive' is an understatement," he wrote in a note.
Yet history showed that sentiment was darkest before the dawn.
"When investor pessimism reached these levels outside of an economic recession, the market was higher one quarter hence in every single instance, and up by an average of 6.4 per cent."
Currency markets were relatively calm with the dollar index .DXY stuck at 99.107 having barely budged for six straight sessions. Risk aversion saw the dollar soften on the yen to 117.48 JPY=, while the euro edged up to $1.0921 EUR=.
One loser was sterling which carved out a seven-year low after Bank of England Governor Mark Carney said he had no "set timetable" for raising interest rates.
The pound sank as deep as $1.4127 GBP=, before steadying around $1.4164.