HONG KONG, RAW – Asian shares have dropped, reversing early gains, after an overnight rebound in US and European stocks as investors shrugged off worries about a potential US government debt default.

Oil paused near new multi-year highs.

The gains in oil are driven by concerns about energy supply, and come two days after the OPEC+ group of producers stuck to its planned output increase rather than raising it further.

US crude rose to its highest level since 2014 on Wednesday but pared gains and was last off 0.09 per cent to $US78.87 a barrel. Brent crude lost 0.08 per cent to $US82.49 per barrel, having hit a three-year high in the previous session.

“OPEC’s outlook suggests further reductions in global oil stockpiles. That’s a problem given that oil inventories are already low,” wrote analysts at CBA in a note.

Rising prices could threaten the global economic recovery as oil demand growth was picking up as economies re-opened on the back of rising vaccination rates, they added.

In equity markets, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6 per cent, reversing early gains, while Japan’s Nikkei lost 0.78 per cent.

Traders say markets are jittery due to worries about China’s real estate market as well as approaching higher interest rates around the world.

There were falls in Hong Kong of one per cent, Korea down 0.9 per cent and Australia down 0.45 per cent.

US stock futures, the S&P 500 e-minis, shed 0.44 per cent.

Chinese markets remained closed for a public holiday, and shares of cash-strapped developer China Evergrande were suspended having stopped trading on Monday pending an announcement of a significant transaction.

Uncertainty about Evergrande’s fate affected Chinese property developers’ bonds and Hong Kong-listed shares and bonds on Tuesday following fresh credit rating downgrades.

Elsewhere, New Zealand’s central bank raised interest rates by 25 basis points but reaction was muted, with the move to increase the cash rate to 0.50 per cent widely expected.

The announcement caused the New Zealand dollar to rise about 0.1 per cent, before falling 0.34 per cent.

Overnight the Dow Jones Industrial Average rose 0.92 per cent, the S&P 500 gained 1.05 per cent and the Nasdaq Composite climbed 1.25 per cent, despite worries the US will default on its debt.

The Senate will vote on Wednesday on a Democrat-backed measure to suspend the US debt ceiling, a key politician said on Tuesday, as partisan brinkmanship in Congress risks an economically crippling federal credit default.

These fears, however, did help push the US dollar back towards 12-month highs, and benchmark treasury yields to near their highest level since mid-June.

In Asian trading, the US dollar hovered close to its highs for the year against a basket of its peers, while the euro stayed near its 14-month low struck last week.

The safe-haven yen fell about 0.5 per cent, reflecting a positive mood in equity markets.

The yield on benchmark 10-year Treasury notes rose to 1.5466 per cent, nearing a four-month high of 1.5670 per cent hit in late September.

Spot gold shed 0.15 per cent to $US1757.3 an ounce, with the non-interest bearing asset hurt by higher yields.