The Federal Reserve is widely expected to cut interest rates at its next meeting this month but close attention is being paid to Friday's non-farm payrolls (NFP) figures, which are seen as playing a major role in how big the central bank will go.
However, analysts warned that traders were sensitive to a reading that is too far above or below forecasts. A miss to the upside could temper hopes for a series of reductions but a reading well below expectations would likely revive worries about a possible recession.
"This week's overload of labour data... will be crucial in breaking the debate between a 25 or 50 basis point cut in September," said Charu Chanana at Saxo Capital Markets, referring to the NFP as well as job openings and private hiring figures.
"If the data remains robust, a 25-basis-point cut is more likely. However, a weak NFP, particularly if it falls below 130,000 with another jump higher in unemployment rate, could push the rates market closer to pricing a 50-basis-point cut."
Chanana added that investors will be paying close attention to comments from New York Fed boss John Williams and governor Christopher Waller later in the week for an idea about officials' thinking.
With Wall Street closed Monday for a public holiday, there were few major catalysts to drive business and Asia slipped.
Hong Kong, Sydney, Seoul, Wellington, Taipei, Manila, Mumbai and Jakarta all fell, with Tokyo marginally lower, though there were small gains in Singapore and Bangkok.
London, Paris and Frankfurt also rose.
Nervousness over the Chinese economy was keeping buyers at bay after another round of data showed the country's manufacturing sector contracted for a fourth straight month.
A stream of indicators has highlighted weaknesses in the economy since leaders lifted painful Covid curbs at the end of 2022, but Beijing has refused to embark on the sort of big-ticket stimulus it unveiled during the global financial crisis.
With no sign that the government will give in to the calls for support, investors are left waiting nervously for the latest round of data this month, with inflation and trade due next week.
The yen strengthened after Bank of Japan chief Kazuo Ueda restateed his intention to lift interest rates again if inflation and the economy meet its forecasts.
The bank's surprise decision to hike in July, hours before the Fed indicated it was ready to begin cutting, sparked a massive unwind of the so-called "yen carry trade" in which investors used the cheap currency to buy high yielding assets like stocks.
That caused ructions in markets, compounded by the weak US jobs data.
In company news, the Hong Kong-listed shares of Cathay Pacific slipped after it announced the temporary grounding of its A350 aircraft for inspections after a "first of its type" engine component failure forced a flight to Zurich to turn back to Hong Kong on Monday.
The Hong Kong carrier said it had cancelled 24 return flights operating up until the end of Tuesday as it inspected its 48 Airbus A350 planes.
- Key figures around 0810 GMT -
Tokyo - Nikkei 225: FLAT at 38,686.31 (close)
Hong Kong - Hang Seng Index: DOWN 0.2 percent at 17,651.49 (close)
Shanghai - Composite: DOWN 0.3 percent at 2,802.98 (close)
London - FTSE 100: UP 0.1 percent at 8,373.63
Euro/dollar: DOWN at $1.1062 from $1.1067 on Monday
Pound/dollar: DOWN at $1.3129 from $1.3147
Dollar/yen: DOWN at 146.02 yen from 147.01 yen
Euro/pound: UP at 84.25 pence from 84.18 pence
West Texas Intermediate: UP 0.5 percent at $73.90 per barrel
Brent North Sea Crude: DOWN 0.4 percent at $77.19 per barrel
New York - Dow: Closed for public holiday
dan/mtp
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