Asian shares fell and the euro was under pressure on Tuesday as political uncertainty and slumping business in Europe raised fears the euro zone could struggle to push through austerity measures and may stay in recession longer.

European shares were likely to rebound, however, with financial spreadbetters predicting that major European markets would open up as much as 0.7 percent. U.S. stock futures were up 0.2 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan moved either side of the midpoint, initially rising as much as 0.4 percent before shedding around 0.3 percent.

Shanghai shares fell 1.5 percent, driving both Hong Kong equities and the pan-Asia index lower. Small and mid-cap stocks suffered deep losses as risk averse Chinese investors continued to switch into large-cap names, which were seen as safer, traders said.

Japan's Nikkei average fell 0.9 percent.

Jitters spread to gold, which eased 0.1 percent to $1,636 an ounce as a shaky euro outweighed its usual safe-haven status.

Gold's short-term outlook is lackluster, as the economic problems in Europe again triggered worries among investors and put pressure on financial markets, and gold was not spared, Hou Xinqiang, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.

Australian shares bucked the trend, rising as much as 0.5 percent before retreating to be up 0.2 percent after a weaker-than-expected inflation reading set the stage for an interest rate cut next week.

The Australian dollar slid to a two-week low near $1.0250 from $1.0316 after consumer prices increased by far less than expected last quarter and key measures of underlying inflation showed the smallest rise in over a decade.

EUROPE FEARS RESURFACE

Concerns about Europe's commitment to fix its fiscal woes mounted after a Sunday vote in France opened up the presidential race, and Dutch Prime Minister Mark Rutte on Monday tendered his government's resignation in a crisis over budget cuts, creating a political vacuum in one of the euro zone's most stable nations.

Data showing the euro zone's business slump deepened at a far faster pace than expected in April further undermined risk appetite, sending U.S. stocks down over 1 percent and European equities to a three-month low on Monday.

The French election campaign, weak manufacturing PMIs and Spanish 10-year bonds yields at around 6 percent are all indicators that make it hard for investors to increase risk appetite, said Ric Spooner, chief market analyst at Sydney-based brokerage CMC Markets.

Dutch and peripheral euro zone bonds sold off on Monday, driving Spanish yields back above 6 percent and taking the spread of Dutch bonds over German benchmarks to the highest in three years.

As investors sought safety, the yield on five-year Japanese government bonds fell below 0.265 percent to a 18-month low early on Tuesday.

The euro struggled to break ranges, hovering near $1.3150, off a two-week high of $1.3225 reached on Friday. The yen firmed against the dollar at 80.90 yen.

Overall, currency markets are in 'risk off' mode. That is to say, while the euro has not weakened that much (bearing in mind it is at the centre of the problem), the yen is stronger and higher-beta currencies softer across the board, Societe Generale said in a research note.

Oil prices traded a narrow range due to uncertainty over demand, keeping U.S. crude prices near $103 a barrel and Brent crude around $118.60 a barrel.

Asian credit markets were subdued on Tuesday, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 2 basis points.

(Additional reporting by Vikram Subhedar in Hong Kong, Rujun Shen and Luke Pachymuthu in Singapore; Editing by Richard Pullin)

Japan Fall