Asian shares tumbled on Wednesday as oil prices dropped for a third day, prompting investors to seek shelter in safe-haven assets and lifting bonds and gold to multi-month highs.

The MSCI's broadest index of Asia-Pacific shares outside Japan fell 2.1 per centled by a 3.0 per cent fall in Hong Kong shares.

Japan's Nikkei lost 3.4 per cent, wiping out almost all of its gains made after the Bank of Japan had announced the introduction of negative interest rates on Friday. Overnight, the US S&P 500 index fell 1.9 per cent.

"There's no sign of improvement in the oil market. Demand is slowing in many emerging markets and in the U.S, which is the world's biggest consumer, oil inventories stood high," said Shuji Shirota, head of macro economic strategy at HSBC in Tokyo.

Brent crude futures, the world's oil benchmark, fell 0.1 per cent to $32.70 per barrel, extending losses so far this week to more than 6 per cent.

US crude futures slipped 0.5 per cent.

Hopes for an agreement to cut production dimmed this week as no deal has emerged and talks between Russia's energy minister and Venezuela's oil minister on Monday failed to result in any clear plan to reduce output.

Oil prices have fallen about 70 per cent in the past 18 months, largely due to a growing supply glut but also exacerbated by cooling economic growth in China and other emerging markets.

Although a private survey on China's services sector on Wednesday showed growth picked up to a six-month high in January, that was a drop in the bucket in markets full of pessimism on the global economy.

The gloom pervading markets bolstered the allure of government debt. As US debt prices jumped, the 10-year US yield hit a 10-month low of 1.828 per cent.

Uncertainty around global growth has prompted investors to slash back their expectation of future US rate hikes, with Federal funds rate futures now pricing in only about a 50 per cent chance of just one rate hike this year.

The Fed has thus far said it could raise rates four times.

Japanese bond yields also kept falling as the market digests the impact of the BOJ's decision to charge interest on a portion of excess reserves, with the 10-year JGB yield hitting a record low of 0.045 per cent.

The two-year JGB yield sank to minus 0.170 per cent.

Dwindling bond yields around the globe made precious metals, which pays no interest, attractive asset for many investors, especially at a time when central banks in Japan and Europe are now adopting negative interest rates.

Gold hit a three-month high of $1,130.90 per ounce on Tuesday and last stood at $1,128.3.

Investors are now anxiously awaiting US economic data in coming days, starting from the services sector survey due later in the day.

"The US economic data has been soft especially in the manufacturing sector so the key is how much the services sector is holding out," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

The US ISM non-manufacturing PMI is expected to dip to 55.1 in January from 55.8 in December. That would be the lowest reading in almost two years but still above the 50 mark that separate contraction and expansion. – Reuters