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Asian shares fell on Tuesday, hurt by the court-ordered liquidation of property giant China Evergrande while rising geopolitical tensions propped up oil prices and kept a lid on risk appetite ahead of the Federal Reserve's meeting

U.S. Treasury yields remained under pressure in Asian hours, keeping a lid on dollar movement, after the Treasury Department said it would need to borrow less than its previous estimates.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.32% and is down over 3% in January, on course to snap a two-month winning streak. Japan's Nikkei was up 0.42%, set for an 8% gain for the month.

How the court order to liquidate Evergrande Group will play out and its impact on the nation's fragile property market is keeping investors on edge.

Although Hong Kong's Hang Seng index managed gains on Monday lifted by energy stocks, on Tuesday it shed 1.4% and was set for a 7% drop in January. Hong Kong's Hang Seng mainland properties index fell 3%.

China stocks fell 0.69% and were on course for a near 4% drop for the month.

"The latest development is a reminder of the risks of investing in the Chinese real estate sector and the challenges that the sector faces on the road to recovery," said Vasu Menon, managing director of investment strategy at OCBC Bank in Singapore.

Overnight, Wall Street gained, with the S&P 500 notching yet another record high close, as market participants looked ahead to this week's slew of megacap earnings, including results from Microsoft and Alphabet later on Tuesday. [.N]

While the Federal Reserve's policy meeting and Chair Jerome Powell's commentary will likely be the main event of the week, investors will also watch out for European inflation data, Bank of England policy meetings and the U.S. employment report this week to help gauge the direction markets will take in the months to come.

"The Fed is expected to signal that though interest rates may have reached their peak, the central bank is not in a hurry to reduce them," said Gary Dugan, CIO at Dalma Capital. "A resurgence in economic growth could further strain the already tight labour market, potentially driving wages up."

The Fed in December surprised market with its dovish tilt, projecting 75 basis points of interest rate cuts in 2024, sparking an blistering year-end risk rally, with traders pricing in easing as early as March.

But since then, a slate of strong economic data, sticky inflation and pushback from central bankers has led markets to significantly dial back their expectations.

Markets now expect 47% chance of a Fed rate cut in March, the CME FedWatch tool showed, down from 88% a month earlier. They currently anticipate 134 bps of cuts in the year, compared with 160 bps of easing a month earlier.

In the currency market, the dollar index, which measures the U.S. currency against six rivals, was steady at 103.43. The yield on 10-year Treasury notes was down 1.3 basis points at 4.078% in early Asian hours. [FRX/] [US/]

The euro last bought $1.0833, inching away from near seven-week low of $1.07955 it touched on Monday as traders adjust their expectations of when the European Central Bank will start cutting interest rates.

Investor jitters on rising tensions in Middle East has kept risk sentiment in check. The United States vowed to take "all necessary actions" to defend American forces after a drone attack killed three U.S. troops in Jordan, while Qatar said it hoped U.S. retaliation would not damage regional security or undercut progress toward a new Gaza hostage-release deal.

U.S. crude rose 0.53% to $77.19 per barrel and Brent was at $82.80, up 0.49% on the day. [O/R]