Asian stocks tumbled on Wednesday and the U.S. dollar climbed, with investors bailing out of recent positions and camping on the sidelines to await company outlooks as what is expected to be a grim results season begins.

Major European stocks were expected to open down as much as 1.8 percent, according to financial bookmakers, as the global equity rally that began last month based on optimism about policymaker efforts hit a wall.

Shares of banks, automakers and technology companies were the main targets of selling in thinning volume, as the harsh reality set in that earnings for the U.S. companies in the S&P 500 are expected to tumble 37 percent in the first quarter, the seventh consecutive declining quarter, according to Thomson Reuters.

Some Asian companies were expected to fare better this year than many of their counterparts in other regions. For example, U.S. earnings this year were forecast to shrink 4 percent versus 1 percent in Hong Kong and 10 percent growth in South Korea, according to global estimates tracker IBES.

Still, the overarching trend of downward earnings revisions was firmly in place.

I think round one of the rally may be over, said Katsuhiko Kodama, a senior strategist at Toyo Securities in Japan.

We're also heading into the earnings season, and while it has been predicted to be bad and you can say things are factored in, it's different when you actually have those figures before your eyes.

Japan's Nikkei share average <.N225> fell 2.7 percent, led by Canon Inc <7751.T> and Honda Motor Co <7267.T>. The index was still 22 percent above its March 10 bear market low.

The business environment in Japan continued to deteriorate in March despite climbing stock prices. Corporate bankruptcies rose 14 percent from a year earlier, increasing for a 10th straight month, research firm Tokyo Shoko Research said.

The MSCI index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> was down 3.7 percent, after being repelled by a major obstacle on technical charts for the third time on Monday.

A 5.3 percent drop in shares of global lender HSBC <0005.HK> was the biggest drag on Hong Kong's Hang Seng index <.HSI>, which led the region with a 4.1 percent decline on the day.

S&P 500 futures were down 1.2 percent, pointing to a lower open, after aluminum producer Alcoa Inc kicked off the U.S. earnings season by posting a second straight quarterly decline.

Klaus Kleinfeld, the company's chief executive, said in a conference call with analysts the U.S. residential construction market might be bottoming out and was hopeful government stimulus action would revive demand for metals.

In the U.S., we are seeing the first signs of markets stabilizing at lower levels, he said.

VOLATILITY UNDER CONTROL

Despite the shakeout in bullish positions in equities, global financial markets appeared to be at an inflection point, with volatility remaining contained and the pace of economic decline appearing to slow across Asia.

The Chicago Board Options Exchange's volatility index, or VIX <.VIX>, closed below its 200-day moving average for a third day. The 20-day moving average of the VIX was on the verge of dropping below the 200-day, signaling a shift to a downtrend.

For now investors have sought cover in the U.S. dollar and yen until some corporate earnings visibility returns.

The euro fell 0.6 percent to $1.3185 and dropped more than 1 percent to 131.55 yen, after touching 137.42 yen on Monday, its highest since late October.

The dollar fell 0.7 percent to 99.80 yen after rising to a near six-month high of 101.45 yen on Monday.

The currency market moved back to risk aversion after optimism had gone a bit too far, said Yoshihisa Kanzaki, a currency dealer at Shinkin Central Bank.

U.S. light crude fell about a dollar or 1.8 percent toward $48 a barrel on Wednesday, adding to Tuesday's 3.7 percent loss after weekly data showed U.S. crude inventories up far more than expected and declining equities dented sentiment.

U.S. Treasuries extended gains from overnight as investors sought a short-term refuge. The yield on the benchmark 10-year yield dipped to 2.87 percent from 2.90 percent on Tuesday in New York.

Australian government bonds rose after a leading indicator of employment fell for a 16th consecutive month in April, causing dealers who had been unwinding yield curve flattening trades to scramble to put them back on.

Japanese government bond futures turned lower after traders hedged against a dose of new supply of 5-year bonds, with the 10-year future down 0.3 point.

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