SEOUL, South Korea (AP) -- Asian stock markets were mostly lower Tuesday as investors continued their flight from risky assets on the prospect of slower Chinese growth and the winding down of the U.S. Federal Reserve's monetary stimulus. European markets rebounded.
Markets in China extended declines from the previous day as investors worried that measures to curb underground lending would hurt growth in the world's second-largest economy.
The Shanghai Composite Index was down 0.2 percent to 1,959.51 after earlier plunging nearly 6 percent, while the smaller Shenzhen Composite Index lost 0.2 percent to 879.93. Hong Kong's Hang Seng rose 0.2 percent to 19,855.72, overcoming earlier losses.
Japan's Nikkei 225 shed 0.7 percent to 12,969.34. South Korea's Kospi dropped 1 percent to 1,780.63 and Australia's S&P/ASX 200 was down 0.3 percent to 4,656. Stocks in the Philippines and Indonesia also declined while India and Singapore gained.
A rise in the yield on the 10-year U.S. Treasury note compounded worries for investors, an analyst said, which could spur more selling of stocks in emerging markets as the cost of borrowing increases.
"A rise in interest rates is a very bad variable for the market," said YS Ryoo, an analyst at Hyundai Securities in Seoul. "Because the cost of borrowing the dollar rises, dollar funds will try to return home quickly."
In Seoul, market heavyweight Samsung Electronics Co. sank 1.2 percent to close at the lowest level since November. In Tokyo, Nissan Motor Co. fell 1.1 percent even after its chief executive promised strong sales growth to shareholders.
Shanghai's stock index endured its biggest loss in four years Monday after the country's central bank allowed commercial lending rates to spike higher. Analysts say the move was part of an effort to curb off-balance-sheet lending in China that could threaten the country's financial stability.
But the higher lending rates could also hurt economic growth. The impact for stock markets would be all the greater if the U.S. Federal Reserve tightens its own ultra-loose monetary policy over the coming months, as it has signaled it would do so long as the U.S. economy improves according to its forecasts.
In Europe, Britain's FTSE 100 added 0.8 percent in early trading. Germany's DAX rose 1.5 percent to 7,806.90 and France's CAC-40 also gained 1.5 percent to 3,650.48. Wall Street appeared set to recoup losses from the day before. Ahead of the opening bell, Dow Jones industrial futures rose 0.5 percent to 14,661. S&P 500 futures rose 0.6 percent to 1,575.10.
Analysts at Moody's Investors Service said they saw the Chinese central bank's action to allow lending rates to rise as "a conscious decision" to curb credit growth.
Moody's said a prolonged credit crunch could threaten Chinese companies, "especially those in the private sector with weak credit quality, because it heightens the risk that banks will scale back lending to those companies." The credit ratings agency said that China's central government finances remain strong, but that rapid credit growth and liabilities at the local level pose a threat to growth.
The concerns over China's credit market were magnified by existing worries that access to money will tighten in the world's largest economy, the U.S.
Investors are concerned what will happen as the U.S. Federal Reserve slows down its monetary stimulus program, which has been pumping $85 billion into the financial system every month and helped many stock indexes reach multiyear or record highs. Markets tumbled last week when Fed Chairman Ben Bernanke said the program would likely slow down this year and end in 2014.
Benchmark oil for August delivery was up 72 cents to $95.90 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.49 to close at $95.18 in New York on Monday.
In currencies, the euro was almost flat at $1.3125 late Tuesday. The dollar fell to 97.21 yen from 97.54 yen.
Researcher Fu Ting in Shanghai contributed to this report.