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HONG KONG, Feb 5 AFP

February 05 2013, 10:52PM

An Asian rally has been brought to a juddering halt by political concerns in Spain and Italy.

The euro also slumped as Spain's prime minister was forced to deny corruption claims and former Italian premier Silvio Berlusconi vowed to throw a spanner in the works of a government austerity drive as his party showed solid gains in polls ahead of a general election.

Tokyo shares dived 1.9 per cent, or 213.43 points, to 11,046.92, while Seoul slipped 0.77 per cent, or 15.03 points, to 1,938.18 and Sydney shed 0.51 per cent, or 24.8 points, to 4,882.7. Hong Kong tumbled 2.27 per cent, or 536.48 points, to 23,148.53.

Shanghai reversed morning losses and ended up 0.2 per cent, or 4.98 points, at 2,433.13 after the Chinese central bank injected a huge amount of cash into the market to satisfy pre-Lunar New Year holiday demand from traders.

The losses come after several markets approached highs not seen for several months as confidence slowly returns, thanks to an easing of the eurozone debt crisis and a pick-up in the US and Chinese economies.

However, dealers suffered a blow on Monday when Spanish Prime Minister Mariano Rajoy came under pressure to step down over a corruption scandal.

Rajoy has dismissed claims by Spain's El Pais newspaper that he and other ruling party officials channelled donations into secret payments.

The news sent the Spanish cost of borrowing surging, reviving worries about Madrid's ability to access the debt market to keep functioning.

Berlusconi, meanwhile, said he would refund the money Italians have had to pay for an unpopular property tax if his coalition, headed by his protege Angelino Alfano, wins a February 24-25 election.

Berlusconi, who would take the role of finance minister in a new government, abolished the real estate tax in 2008 but it was reinstated last year as part of Prime Minister Mario Monti's austerity budget in Italy.

The news out of Europe hit the euro, which tumbled in New York late on Monday to $US1.3503 and Y124.28, from $US1.3626 and Y126.26 earlier in the day in Asia.

In Tuesday afternoon Tokyo forex trade the euro fetched $US1.3485 and Y124.52 yen.

The dollar bought Y92.33 compared with Y92.11 in New York late on Monday.

The Australian dollar eased to US$1.0409 from US$1.0444 after the country's central bank held interest rates on hold at three per cent.

On Wall Street the Dow, which ended near a record high on Friday, dropped 0.93 per cent on Monday, while the S&P 500 fell 1.15 per cent and the Nasdaq slipped 1.51 per cent.

In Europe there were heavy losses on all the main indexes on Monday, with London's FTSE 100, Frankfurt's DAX and the Paris CAC diving between 1.6 per cent and 3.00 per cent. Madrid tumbled 3.77 per cent and Milan slumped 4.5 per cent. On Tuesday the markets were mixed.

Oil prices eased in Asia. New York's main contract, light sweet crude for delivery in March, dropped 15 cents to $US96.02 a barrel in the afternoon and Brent North Sea crude for March shed 37 cents to $US115.23.

Gold was at $US1,678.01 at 1040 GMT (2140 AEDT) compared with $1,665.40 late on Monday.

In other markets:

- Singapore closed down 0.75 per cent, or 24.71 points, to 3,272.66.

DBS Bank dropped 0.59 per cent to Sg$15.20 and real estate firm CapitaLand shed 1.02 per cent to Sg$3.89.

- Kuala Lumpur shares lost 0.07 per cent, or 1.2 points, to close at 1,633.35.

Telekom Malaysia dipped 1.1 per cent to 5.48 ringgit, while Axiata Group fell 0.2 per cent to 6.29. Hong Leong Bank added 1.3 per cent to 14.60 ringgit.

- Jakarta ended down 0.25 per cent, or 11.12 points, at 4,479.44.

Cigarette producer Gudang Garam fell 1.48 per cent to 49,950 rupiah, food manufacturer Cahaya Kalbar lost 1.73 per cent to 1,700 rupiah and cement maker Semen Indonesia rose 2.52 per cent to 16,250 rupiah.

- Bangkok lost 0.04 per cent, or 0.65 points to 1,505.72.

Coal producer Banpu dropped 1.77 per cent to 389.00 baht, while Kiatnakin Bank added 1.79 per cent to 56.75 baht.

- Taipei fell 0.46 per cent, or 36.22 points, to 7,886.94.

Hon Hai Precision shed 1.07 per cent to Tw$83.1 while leading smartphone maker HTC was down by its 7.0 per cent daily limit at Tw$266.0.

- Manila closed 0.54 per cent higher, adding 34.51 points to 6,470.49.

BDO Unibank rose 1.53 per cent to 83.05 pesos while SM Investments also gained 1.53 per cent to 995 pesos.

- Mumbai's Sensex index slid 0.46 per cent, or 91.37 points, to 19,659.82.

Mobile phone firm Bharti Airtel fell 1.93 per cent to 324.55 rupees and Tata Motors fell 1.64 per cent to 287.05 rupees.

- Wellington fell 0.81 per cent, or 34.46 points, to 4,211.95.

Fletcher Building was down 2.39 per cent at NZ$8.97, Telecom slipped 2.89 per cent to NZ$2.355 and Contact Energy lost 1.14 per cent to NZ$5.20.