SYDNEY: Australian shares fell 0.7 percent in morning trader on Tuesday, as fears over out-of-control government debt on both sides of the Atlantic sent investors scurrying for safety.
In Europe, Moody's warned about France's rating outlook and Spanish yields rose following the election of a new government, escalating concerns of contagion.
The US congressional committee also failed to reach an agreement on reducing US government deficits.
"The super committee in the US, after many, many months of deliberation has come to nothing," said Lucinda Chan division director Macquarie Equities.
Chan said investors may also be concerned that a US downgrade could be back on the table.
"And Europe was no better because they also have their own issues," she added.
Resources stocks lost ground in early trade after metal prices fell overnight. Rio Tinto fell 2.4 percent, while Iluka Resources slid 2.7 percent and Fortescue Metals Group was down 1 percent.
Energy and materials sectors were the weakest performers in morning trade.
The benchmark S&P/ASX 200 index eased 29 points to 4,134.0 at 0104 GMT. The index closed 0.3 percent lower on Monday.
"Volumes have also been particularly light because everyone has preferred to stay on the sidelines and wait for the storm to go over, before they do anything," said Chan.
New Zealand's benchmark NZX 50 index was down 0.4 percent at 3,243.2.
STOCKS ON THE MOVE
Australian steel maker Onesteel slid 8.6 percent, to A$0.85, a 10-year low. The company faces difficult head winds after iron ore prices fell by almost a third in the space of a month. The company also said at its AGM on Monday that conditions for the Australian steel industry remain challenging.
Shares in Qantas Airways slipped 1.8 percent to A$1.61 after talks between airline and its pilots, engineers and other key employee groups broke down and all sides now have to accept a future settlement imposed by Australia's industrial umpire.
Shares in Australia's largest steelmaker, BlueScope Steel , were placed in a trading halt on Tuesday after the company announced a heavily discounted A$600 million ($590 million) capital raising, to help shore up the company's finances as it battles rising costs and weakening sales.
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