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Japan's Nikkei fell on Tuesday morning as investors booked profits on cyclical stocks that rallied the day before, while falling US bond yields pressured financial companies.
The Nikkei share average fell 0.7 per cent to 22,418.87 by the midday break, after rising to a two-week high on Monday as investors took heart after the United States and China suspended the imposition of new tariffs on the weekend.
Analysts said that the market had priced in the Sino-US trade truce and was looking to more events ahead such as the US Federal Reserve's policy meeting later this month.
“Putting off trade talks served as a positive catalyst to the market, but the market moved past it quicky,” said Katsuhiko Nakamura, a senior technical analyst at Mizuho Securities.
“Whether the market ends the year on an upbeat note or not will depend on Fed policy and oil price moves.”
Falling oil prices, hit by oversupply concerns, have been one of the worries pressuring stocks.The Nikkei has shed 1.4 per cent so far this year. If it ends in positive territory for 2018, it would be the seventh straight year of gains since the Abenomics-inspired rally started in 2012.
Banks and insurers, which typically accumulate higher-yielding products such as foreign bonds in their portfolios, lost ground after the US benchmark 10-year yield slipped to 2.966 per cent, the lowest since September 13.
Mitsubishi UFJ Financial Group dropped 1.5 per cent, Sumitomo Mitsui Financial Group stumbled 2 per cent, while Dai-ichi Life Holdings shed 1.6 per cent.
Companies with high exposure to China that rallied on Monday lost ground on profit-taking. Factory automation equipment maker Yaskawa Electric shed 3.2 per cent and construction equipment maker Hitachi Construction Machinery declined 2.8 per cent.
Baby bottle maker Pigeon Corp dropped more than 3 per cent after the firm's decision to keep its full-year outlook unchanged disappointed investors, although its net profit for the February-October period rose 17 per cent on the year to ¥12.2 billion.
Tea beverage maker Ito En stumbled 3.3 per cent after its net profit for the May-October period dropped 5.9 per cent on the year to ¥8.698 billion, pulled down by a special loss related to torrential rain that hit Japan in July. The broader Topix fell 1.1 per cent to 1,671.24.
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