Japan's Nikkei Stock Average fell 1.4%, Australia's S&P/ASX 200 lost 0.9% to 4541.6, South Korea's Kospi Composite was 1.5% lower and New Zealand's NZX-50 was off 0.2%.
Dow Jones Industrial Average futures were down 29 points in screen trade.
Wall Street's sharp losses Monday amid renewed fears Europe's debt crisis could spread to Italy and Spain heightened risk aversion and dented sentiment across regional markets.
"It will take one or two years for the sovereign debt issues in Europe to be resolved," said Masayoshi Yano, a senior market analyst at Meiwa Securities in Tokyo. "Market sentiment is fickle, switching back and forth between optimism and pessimism," he added.
RBS head of domestic sales in Sydney, Justin Gallagher, said the markets may find it hard to shake-off the contagion fears: "The biggest concern now is Italy and whether it is at a point where it needs assistance. The fear is that Italy may be too big to bail out. I think that's going to continue spooking markets in the short term."
Australia's benchmark S&P/ASX 200 index slid to a nine-day low of 4530.2 in response to the beaten-down sentiment and worries about Europe. A carbon tax proposal unveiled by the government over the weekend also continued to hurt the market
Major banks were down 1.0%-1.6%, while BHP Billiton and Rio Tinto lost 1.1% and 1.3%, respectively.
The spotlight, however, fell on Macarthur Coal. It's stock rocketed after Peabody Energy Corp. and ArcelorMittal Monday launched a 4.68 billion Australian dollars (US$5 billion) takeover bid of the Australian coal miner. The bid was priced at A$15.50-a-share. This is the first joint bid for Macarthur by Peabody and ArcelorMittal. Peabody made four separate unsuccessful offers for Macarthur in the early months of last year. The stock is recently up 37% at A$15.20.
The European debt concerns also took their toll on the Tokyo and Seoul markets, while the yen's strength against the euro further hurt Japanese exporters.
Sony and Canon, which have critical-mass exposure in Europe, fell 2.4% and 1.7%, respectively.
Denso fell 2.5% on a sluggish operating profit forecast for the current fiscal year.
Elpida Memory was flat after it dropped 13% on Monday due to dilution concerns after the chip maker said Monday it will issue new shares and convertible bonds to raise up to 79.67 billion yen ($993 million).
In Seoul, heavyweight stocks dragged the market down. Samsung Electronics was down 1.6%, Woori Finance Holdings slipped 2.2% and Hyundai Motor lost 2.2%.
In foreign exchange markets, the euro remained under pressure against the U.S. dollar after slumping to a seven week low below $1.40 on Monday amid growing concerns Europe's debt crisis could spread to Italy and Spain.
The euro failed to hold on to modest gains made after euro-zone finance ministers late on Monday--early Asian trade--vowed they would work to prevent the debt crisis from engulfing Spain or even Italy. The ministers, meeting in Brussels Monday night, said they would consider measures to enhance the "flexibility" and "scope" of the European Financial Stability Facility, the €440 billion fund set up last year to lend money to euro-zone nations.
The single currency was at $1.4018 against the dollar, from $1.4032 late Monday in New York, and at ¥112.40 against the yen, from ¥112.56. The dollar was at ¥80.20, from ¥80.26.
"There appears to be no end in sight to the crisis in the euro-zone, with the euro-group announcement (Monday) unlikely to prevent further market haemorrhaging," said Credit Agricole in a note to clients. "The fact that Italy and Spain are becoming increasingly embroiled in the crisis is a worrying development for policy makers. It is unlikely that pressure will ease over coming sessions unless there is a clear and strong agreement in Europe," it said, adding that risk-assets and the euro in general will continue to remain under pressure.
September Japanese government bond futures were up 0.30 at 141.29 points, boosted by safety-bid amid fresh worries about contagion of the European debt crisis, and Monday's rally in U.S. Treasurys. The 10-year cash JGB yield was down 2.5 basis points at 1.110%.
Spot gold was at $1,554.90 per troy ounce, up 50 cents from its New York settlement Monday. August Nymex crude oil futures were down 15 cents at $95.00 per barrel on Globex.
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