Filomena Scalise

Tokyo - Asian stocks slumped in early trading on Tuesday as Wall Street gloom cast a shadow over the session, while caution ahead of the Bank of Japan's meeting outcome limited gains of the safe-haven yen.

MSCI's broadest index of Asia-Pacific shares outside Japan was down about 0.1 percent, and Japan's Nikkei stock average shed 0.7 percent.

On Monday, the Nasdaq Composite suffered its worst three-session decline since November 2011 as Internet stocks tumbled, while the S&P 500's three-day fall was its steepest since late January.

The BOJ is expected to maintain its current monetary policy at a two-day meeting ending on Tuesday, and affirm its conviction that the economy is on track to meet the target of 2 percent inflation within a year or so even as this month's sales tax hike clouds the economic outlook.

“The stock market does not expect the Bank of Japan to make any policy changes when its monetary policy board meets in April. If the BOJ actually does announce additional easing it would come as a positive surprise,” Naoki Kamiyama, equity strategist at Bank of America Merrill Lynch in Tokyo said in a note to clients.

Data released shortly before the market open showed some economic resilience, as Japan's current account balance returned to a surplus in February for the first time in five months on stronger exports to Asia and rising income from overseas investments.

Against the yen, the dollar fell about 0.1 percent to 103.02 yen, well off its 2-1/2 month high of 104.13 yen hit on Friday.

Rising tensions in the Ukraine also sapped investor appetite for risk. Pro-Moscow protesters in eastern Ukraine seized arms in one city and declared a separatist republic in another, moves Kiev described on Monday as part of a Russian-orchestrated plan to justify an invasion.

Heightened fears of escalation, as well as slumping stocks, pushed down the yield on benchmark 10-year Treasuries as investors flocked to the safety of fixed-income assets. The yield remained close to overnight lows at 2.700 percent in early Asian trade, compared to its US close of 2.695 percent.

Remarks from European Central Bank policymakers Ewald Nowotny and Yves Mersch bolstered the euro, curbing investors' expectations of near-term euro zone economic stimulus.

Nowotny said there was no need to act immediately to counter euro zone disinflation, while Mersch said that while the central bank was drawing up plans for large-scale asset purchases, action remained some way off.

The common currency was steady against the yen to 141.65 yen, remaining above Monday's more than one-week low of 141.12 yen.

Against the dollar, it was flat on the day at $1.3741, having pushed off Friday's five-week nadir of $1.3672 to Monday's high of $1.3748.

In commodity markets, gold was slightly up from the previous session at $1,297.84 an ounce. - Reuters