Asian stocks fell on Tuesday after rating agency Standard & Poor's lowered its U.S. credit outlook to negative, prompting a global flight to other assets.

The euro nursed heavy losses early in Asia while the yen gained across the board as worries about sovereign debt problems in Europe and the United States prompted investors to unwind carry trades.

Standard & Poor's threatened on Monday to downgrade the United States' prized AAA credit rating unless the Obama administration and Congress find a way to slash the yawning federal budget deficit within two years.

S&P, which assigns ratings to guide investors on the risks involved in buying debt instruments, slapped a negative outlook on the country's top-notch credit rating and said there's at least a one-in-three chance that it could eventually cut it. The Dow Jones Industrial Average <.DJI> fell 1.1 percent to 12201.59.

The overnight tumble of U.S. shares further deepened investor worries about the pace of the U.S. economic recovery, said Simon Liu, deputy investment officer of Polaris Group's asset management firm in Taiwan.

In the longer term, foreign fund flows will go into emerging markets and out of developed economies, said Liu.

Despite the downgrade in the outlook for U.S. sovereign debt, U.S. Treasuries were mostly steady as other concerns, such as falling stock prices, appeared to trump the outlook revision.

After an earlier sell-off, the 30-year bond was 10/32 higher in price and yielding 4.45 percent, down from 4.47 percent late Friday.

The gap between two-year note yields and 30-year bond yields briefly hit a recent high of 384 basis points, or the largest spread since March 17, but it was last at 379 basis points, up from 377 basis points late on Friday.

Some analysts said the decline in Asian stocks was likely profit-taking triggered by a global pull back in risk-taking due to the long-term threat of a U.S. rating downgrade and nearer-term fears of a Greek debt restructuring.

Japan's Nikkei stock average fell 1.5 percent after the S&P cut with the benchmark Nikkei average <.N225> down 142.66 points at 9,413.99, while the broader Topix <.TOPX> shed 1.35 percent to 825.07.

Outside Japan, MSCI's index of Asia-Pacific stocks <.MIAPJ0000PUS> slipped further away from a nearly three-year high hit last week. It was down 1.2 percent in early trade.

The euro fell to as low as 116.41 yen -- the lowest since March 30. The dollar also underperformed the yen, falling to a near three-week low around 82.16, before recovering slightly to last stand at 82.59.

The Australian and New Zealand dollars slipped on the U.S. dollar and yen as falling stocks, escalating euro debt woes and a credit warning for U.S. debt sparked a wave of risk aversion.

The Australian dollar slipped to $1.0465, from $1.0510 late in New York and a high of $1.0572 on Monday. It dipped as far as $1.0454 offshore after S&P's warning to Washington.

Spot gold rose as much as nearly 1 percent in early morning trade, before trimming gains to $1,489.19 an ounce by 0303 GMT, up half a percent. In the previous session, gold reached a record high of $1,497.20

NYMEX crude for May delivery, which expires on Tuesday, was down 6 cents at $107.06 a barrel by 0035 GMT, after settling down $2.54 at $107.12 a day earlier.

Brent crude for June fell about 0.4 percent to $121.17 a barrel versus a $121.61 settlement in the previous session.

The Reserve Bank of Australia (RBA) painted an upbeat outlook for the local and global economies in minutes of the April policy-setting meeting released on Tuesday.

Japan Fall