Asian stocks slid on Wednesday as an unexpected fall in U.S. home sales added to worries about the fragility of the global economic recovery and optimism over China's promise to make the yuan more flexible faded further.

Japan's Nikkei share average <.N225> fell 1.7 percent, sliding to a one-week low and back toward a key support level, while the MSCI index of Asia Pacific ex-Japan stocks <.MIAPJ0000PUS> was down over 1 percent as investors sold riskier assets.

Shares of resource firms and banks led the declines on concerns that global demand could be sputtering, weighing on commodities prices, but gold miners such as Australia's Newcrest Mining rose 1.2 percent as investors looked for safe havens from the selling in other markets.

Lorraine Tan, director of Asia equity research at S&P in Singapore, said many investors were sidelined, worried about a double dip in the economy. Poor economic data was a reminder that any global economic recovery is going to be slow.

At this stage, I don't think there will be a double dip, but this sluggish growth will last, with little bumps along the way, she said.

U.S. stock indexes fell as much as 1.6 percent on Tuesday, hit by the poor housing data and the S&P 500 <.SPX> moving below its 200 day-moving average, which has been seen as a key technical support level for the markets' recent rally. <.N>

Sales of U.S. existing homes unexpectedly fell in May, sparking worries that the Federal Open Market Committee may offer a less upbeat economic outlook after a two-day meeting ends on Wednesday.

While the housing data is volatile, some analysts also pointed to a dip in German business expectations as weighing on investor confidence.

Business sentiment rose in June to its highest level since May 2008, the Ifo think tank said. But a drop in expectations pointed to a slowdown in the recovery at the end of the year as the government withdraws economic stimulus measures.

Ifo underscores a high degree of economic dynamism in the second and third quarters, said Joerg Lueschow, economist at WestLB.

However, the slight worsening in the expectations component, which should continue in the coming months, points to a weaker dynamic in 2011. But we don't expect a sharp downturn.

The dollar <.DXY> and the yen edged higher while the euro and high-yielding currencies like the Australian dollar were on the defensive as a recent risk rally appeared to have run its course and the euphoria from China's new yuan policy waned. The euro was trading around 1.2264 to the dollar.

Global markets jumped on Monday as China's announcement of currency reforms raised hopes that a stronger yuan would lift its purchases of foreign goods and boost the global economy, but the realisation soon set in that any appreciation would be slow.

Beijing allowed the yuan to gain nearly 0.5 percent against the dollar on Monday, but selling by big state-owned banks kept it in check on Tuesday.

China's central bank set the yuan's daily mid-point at 6.8102 against the dollar on Wednesday, slightly stronger than Tuesday's spot market close but below Tuesday's mid-point setting.

Energy shares <.GSPE> were also hit as oil prices fell on higher U.S. inventories, and after the Obama administration said it would appeal a court decision which overturned its moratorium on deepwater drilling in the wake of the Gulf of Mexico spill.

U.S. crude for August delivery slid 43 cents to $77.42 a barrel. Spot gold rose slightly to $1,240.25 an ounce as investors sought a safe haven.

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