Asian stocks fell on Tuesday as lift from NAFTA deal faded

Asian stocks fell on Tuesday as the lift from an agreement that saved the North American free trade deal faded, with cautious views on the global economy curbing risk sentiment.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.3 per cent after a steady start.

Australian stocks lost 0.7 per cent and South Korea's KOSPI fell 0.9 per cent.

Bucking the overall trend, Japan's Nikkei added 0.1 per cent, after rising as much as 0.8 per cent to a new 27-year intra-day high of 24,448.07.

Spreadbetters expected a weaker tone in European equities, forecasting a lower open for Britain's FTSE, Germany's DAX and France's CAC.

China's financial markets are closed for the week of Oct. 1-5 for national holidays.

Hong Kong's Hang Seng, which did not trade on Monday due to a holiday, dropped 1.9 per cent in reaction to signs of weakness in the Chinese manufacturing sector shown in purchasing managers' index (PMI) numbers released on Sunday.

"While news that the U.S. and Canada had struck a new NAFTA trade deal gave the S&P 500 a lift overnight, dark clouds are gathering," strategists at OCBC Bank wrote in a note.

"With some signs of weakness in the European and Asian manufacturing PMI Asian, markets may trade with a slightly more cautious tone."

IHS Markit purchasing managers' indices released on Monday showed manufacturing growth in the euro zone slowed to a two-year low at the end of the third quarter.

The United States and Canada forged a last-minute deal on Sunday to salvage NAFTA as a trilateral pact with Mexico, rescuing a $1.2 trillion open-trade zone that had been about to collapse after nearly a quarter century in operation.

The Dow rose 0.73 per cent and the S&P 500 gained 0.36 per cent on Monday after the deal to preserve NAFTA helped ease trade worries.

"There were concerns that the resulting confusion would exceed that of the U.S.-China trade row if NAFTA was scrapped. While it appears like Canada and Mexico caved into the United States, the outcome is positive for global trade and the economy," said Yoshihisa Maruyama, a chief market economist at SMBC Nikko Securities in Tokyo.

The Canadian dollar traded at C$1.2815 per dollar after rallying to a four-month high of C$1.2782 overnight following the trilateral trade pact.

The euro was little changed at $1.1543 after slipping 0.25 per cent on Monday on renewed concerns about heavily-indebted Italy's budget.

The single currency has been hurt by concerns that a significant increase in the Italian budget will deepen Italy's debt and deficit problems.

The dollar was at 113.845 yen after scaling an 11-month high of 114.06 yen on Monday, as improving investor risk sentiment weighed on the Japanese currency.

The yen is usually seen as a safe haven at times of turmoil but recedes when risk appetite returns.

The dollar index against a basket of six major currencies rose 0.2 per cent to 95.462, its highest since Sept. 10.

The greenback drew support from an uptick in U.S. Treasury yields as Wall Street gains curbed demand for safe-haven debt.

In commodities, U.S. crude futures were up 0.4 per cent at $75.60 a barrel.

Crude contracts surged nearly 3 per cent to $75.77 a barrel on Monday, their highest since November 2014, as the deal to salvage NAFTA stoked economic growth expectations, with impending U.S. sanctions on Iran seen raising prices.

Brent crude edged up 0.1 per cent to $85.07 a barrel after rallying 2.7 per cent the previous day to an $85.45, highest since November 2014.

(With inputs from agencies.)