Asian markets plunged Tuesday following a highly volatile day on Wall Street fuelled by fears about the Federal Reserve's plans to hike interest rates, with attention lasered on its upcoming two-day policy meeting.

A disappointing start to the corporate earnings season, as well as growing concern about Russia's troop build-up on Ukraine's border and warnings of a possible invasion were also dragging on sentiment.

After spending much of last year playing down the spike in prices, the US central bank has in recent months taken a sharp hawkish turn on monetary policy as officials look to bring inflation -- which is at a four-decade high -- under control.

Minutes from the most recent meeting indicate it will begin lifting interest rates from March with three or possibly four more hikes before the end of the year. On top of that, it plans to start offloading its vast bond holdings.

But while the move to battle runaway prices is seen as crucial, the end of the era of ultra-cheap cash for investors has rattled markets after almost two years of uninterrupted gains to record or multi-month highs.

All attention is on the Fed gathering that starts later in the day, with investors poring over every word from the bank's statement and boss Jerome Powell's subsequent news conference.

"The Fed is scrambling to control inflation and markets have gone from expecting a gradual interest rate hiking cycle to an accelerated tightening action until inflation eases," said OANDA's Edward Moya.

"Some economists think the Fed needs a half-point rate increase in March to show they are serious about tackling inflation and signal that more are coming."

He added that officials need to "send a message they are tackling inflation, but they don't need to overcommit themselves. The Fed's best option is to signal they will raise rates by 25 basis points in March and signal another one is coming in May. Inflation may show its peak around then and they may not need to be as aggressive going forward."

Wall Street's three main indexes have had a particularly rough time, with the Nasdaq down more than 10 percent from recent peaks, putting it in correction territory.

And on Monday they saw some wild gyrations, suffering intra-day losses before dip-buying saw them all surge in the last hour to end in positive territory.

London, Paris and Frankfurt tanked Monday, without enjoying any recovery, with eyes on eastern Europe as the United States said 8,500 troops were put on standby for possible deployment to boost NATO as fears grow that Russian President Vladimir Putin is planning to invade Ukraine.

But all three markets rose in opening trade Tuesday.

"Volatility is back," Lori Calvasina, at RBC Capital Markets, told Bloomberg Television. "We're having a sea-change in terms of Fed policy. Equity investors frankly have been behind the curve in anticipating what's coming, so there's a lot of catch-up to do."

Asia spent all Tuesday well in the red with Tokyo down 1.7 percent as Hong Kong shed 1.7 percent, while Singapore, Taipei and Jakarta were also off more than one percent.

Sydney shed 2.5 percent after higher-than-forecast Australian core inflation figures ramped up bets on a rate hike by the country's central bank.

Shanghai and Seoul fell more than two percent, with Wellington, Mumbai and Bangkok also down.

While there is a general consensus that the long-term outlook for markets remains positive -- thanks to reopenings, vaccination programmes and the less-severe Omicron variant -- many also warn of more near-term upheaval.

Jeremy Siegel, at the Wharton School of the University of Pennsylvania and author of "Stocks for the Long Run", said: "I'm still very positive on long-term equities but I think it's in for a rocky time the next two or three months.

"We have to get used to the fact that the Fed is going to be much more hawkish."

- Key figures around 0820 GMT -

Tokyo - Nikkei 225: DOWN 1.7 percent at 27,131.34 (close)

Hong Kong - Hang Seng Index: DOWN 1.7 percent at 24,243.61 (close)

Shanghai - Composite: DOWN 2.6 percent at 3,433.06 (close)

London - FTSE 100: UP 0.7 percent at 7,345.70

Dollar/yen: DOWN at 113.87 yen from 113.98 yen late Monday

Euro/dollar: DOWN at $1.1307 from $1.1329

Pound/dollar: DOWN at $1.3481 from $1.3489

Euro/pound: UP at 83.88 pence from 83.94 pence

West Texas Intermediate: UP 0.7 percent at $83.86 per barrel

Brent North Sea crude: UP 0.8 percent at $86.99 per barrel

New York - Dow: UP 0.3 percent at 34,364.50 (close)

dan/dva

BANQUE ROYALE DU CANADA

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