Charles Plosser, president of the U.S. Federal Reserve's Philadelphia branch, told an audience that the Fed's efforts to support the world's biggest economy would likely fall short of its goals. That soured sentiment and sent Wall Street lower Tuesday.
Global stocks had risen earlier in the month as the Fed and other central banks came up with measures to boost sluggish growth. But optimism stemming from those moves has faded. Central banks had already bathed economies in massive stimulus through low interest rates and bond purchases but the world is still struggling to eke out growth, highlighting the limits of monetary policy.
Tensions between China and Japan, which are the world's second and third-biggest economies, have also knocked sentiment because of the risk it will affect trade.
Japan's Nikkei 225 stock average was down 1.6 per cent at 8,942.93 and Hong Kong's Hang Seng dropped 0.9 per cent to 20,525.17. South Korea's Kospi shed 0.6 per cent to 1,980.02 and Australia's S&P/ASX 200 fell 0.5 per cent to 4,351.90.
In Tokyo, export-dependent issues were sold on worries about the global economy and the continued strength of the yen, which erodes the earnings of such companies. Toyota shed 1.9 per cent and Murata Manufacturing Co. plunged 3.1 per cent.
Masahiro Yamaguchi, a vice-president at Mizuho Securities Co. in Tokyo said auto and other export issues were getting hurt because of worries about a slowdown in China, as well as the possible negative impact on exports from a simmering territorial dispute with China over tiny islands.
"It's about the China risk," he said. "The monetary policies are likely helping keep the drop in check, but they weren't enough to keep the rise going."
Political uncertainty in Japan was also adding to the cautious mood. The main opposition party is choosing a new chief later in the day. The candidates have more assertive policies than the administration in power, which could further deteriorate relations with China. The ruling party is expected to suffer a serious setback in the next parliamentary elections because of an unpopular tax increase.
On Wall Street, the Standard & Poor's 500 lost 15.30 points, its fourth straight decline, to close at 1,441.59. The 1.05 per cent drop was the worst for the S&P since June 25. The Dow Jones industrial average lost 101.37 points to close at 13,457.55.
In currency trading, the dollar fell to 77.75 yen from 77.70 yen late Tuesday. The euro rose to $1.2903 from $1.2898.
Benchmark crude was down 25 cents at $91.12 in electronic trading on the New York Mercantile Exchange.
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