"Risk aversion is likely to be the dominant theme until there is reasonable certainty that oil prices can retreat to $90 or below," Ric Spooner, chief market analyst at CMC Markets in Sydney, told Dow Jones Newswires.
"The threat of a permanent rise in oil prices has hit at a time when equity markets were priced on the assumption of solid earnings growth over the next 12 to 18 months.
"Oil at over $100 per barrel for any length of time is likely to lead to reduced expectations for consumer discretionary spending and corporate profitability." Markets got a weak lead from the United States, where the volatility in Libya and the Middle East spooked Wall Street. The Dow Jones Industrial Average dropped 0.66 percent, the S&P 500 index fell 0.83 percent and the tech-rich Nasdaq Composite dropped 1.40 percent. Gold prices eased slightly after hitting a new all-time record high of $1,440.32 in London on Monday. Gold opened at $1,430.80-$1,431.80 an ounce in Hong Kong down from Monday's close of $1,437.00-$1,438.00. On currency markets, the dollar moved narrowly against the yen, with trading lacklustre. The euro was supported by anticipation of a likely interest rate rise by the European Central Bank, despite renewed worries about European sovereign debt after Moody's downgraded Greece and yields on Portugal's 10-year bonds hit a euro-era high of 7.5 percent. The dollar fetched 82.28 yen in Tokyo morning trade, little changed from 82.25 yen in New York late Monday. The euro eased slightly to $1.3966 from 1.3971. The single European currency was marginally higher at 114.91 yen compared to 114.82 yen.