Asian shares slip on Europe nervousness

Asian shares dipped early Tuesday as the previous day's relief at political progress in Italy and Greece was replaced by caution over whether Europe's leaders can tame the eurozone debt crisis.

As new governments in Rome and Athens prepared to push through key debt-busting legislation, German Chancellor Angela Merkel warned that the region was facing its "hardest hour" since World War II.

Tokyo was 0.42 percent lower by the break, Hong Kong shed 0.67 percent, Sydney fell 0.37 percent and Seoul dipped 0.41 percent. Shanghai was flat.

Markets rallied on Monday after Italian prime ministerial nominee Mario Monti replaced Silvio Berlusconi. Greece also has a new leader, Lucas Papademos.

However, they fell Tuesday following a sell-off in Europe and the United States as dealers began to consider that despite a change in leadership, Italy and Greece still faced a tough task to implement effective measures.

"Whilst the new governments led by reform-minded economists are seen as a good starting point for the reform process, implementation will at best take time," said Ric Spooner, Chief Market Analyst at CMC Markets.

"Markets are faced with a medium-term outlook full of risk that economic reforms will not survive the political process," he told Dow Jones Newswires.

On Wall Street the Dow, which had risen in the previous two sessions, shed 0.62 percent, while the S&P 500 dropped 0.95 percent and the tech-heavy Nasdaq slid 0.80 percent.

In London, the FTSE-100 closed down 0.47 percent, the Paris CAC 40 lost 1.28 percent and the Frankfurt DAX 30 dropped 1.19 percent.

Milan was down 1.99 percent and Madrid shed 2.15 percent.

Highlighting the market's continued nervousness in Rome, Italy's Treasury sold 3.0 billion euros (ê4.1 billion) in a five-year bond auction at interest rates of 6.29 percent, up sharply from 5.32 percent in October.

On Monday Merkel told her party congress: "Europe is today... perhaps in its hardest hour since the Second World War."

But she added that just as Germany had vowed to emerge stronger from the 2008 financial crisis, "now we must see to it that Europe comes out of today's crisis stronger".

She added: "It's time for a breakthrough to a new Europe."

The euro suffered a sell-off late Tuesday in New York but was rangebound in Asia.

The common currency fetched ê1.3627 and 105.00 in Tokyo trade against ê1.3629 and 105.07 in New York late Monday.

The dollar was at 77.05 yen compared to 77.09 yen.

On oil markets New York's main contract, light sweet crude for December delivery, was eight cents higher at ê98.22 a barrel and Brent North Sea crude, also for December delivery, advanced 44 cents to ê112.33.

Gold was trading at ê1,779.95 an ounce by 0200 GMT, compared with ê1,781.15 late on Monday.