Asian shares mostly down on concerns China may resume strict Covid curbs

Asian shares were on the defensive on Tuesday as a Covid-19 resurgence in China increased concerns that Beijing may reimpose strict pandemic curbs and that further restrictions could cause supply chain disruptions.

The dollar pulled back from strong overnight gains on Tuesday while oil took a pause from Monday's retreat.

The broader Asia-Pacific index lost 0.25% in early trade, while China's benchmark CSI.300 dipped 0.13%. Hong Kong's benchmark index fell 1.31%.

Japan's benchmark Nikkei average opened up 0.78%, while Australian shares rose 0.55%.

"China's Covid situation is really in the front row for Asia trading," said Redmond Wong, market strategist for Greater China at Saxo Markets in Hong Kong.

Beijing warned on Monday that it was facing its most severe test of the pandemic, fuelling investor concerns that China may be forced to resume strict mobility curbs and give stay-and-home orders across cities.

Surging cases in manufacturing cities may cause supply chain disruptions, said Wong.

The dollar pared some of its strong overnight gains on Tuesday after investors flocked to the safe-haven currency on nerves over China's Covid flare-ups, but analysts at the National Australia Bank questioned whether demand for the greenback was sustainable.

"Evidence US inflation has peaked and can fall significantly in 2023, together with China and Europe developments, convince us a USD depreciation cycle is now in train," they said in a note on Tuesday.

US Treasury yields across most maturities rose on Tuesday amid expectations of further Federal Reserve interest rate hikes. The benchmark 10-year Treasury yield six basis points.

Oil prices rose slightly in early Asian trade, a day after Saudi Arabia denied a media report that it was discussing an increase in oil supply with OPEC and its allies.

US crude CLc1 rose 0.27% to $80.26 per barrel on Tuesday and Brent LCOc1 was at $87.79, up 0.19%.

Spot gold traded at $1,738.39 an ounce.