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TOKYO (Reuters) - Asian shares will likely take their lead from overnight plunges in global equities while currency markets remain jittery on Tuesday as the uncertainty over Italy's election results fuels fears of a resurgent euro zone debt crisis.
With more than two-thirds of the vote counted, Italy's center left said in a statement on Monday it had won the lower house and gathered more votes than its center-right rival in the Senate.
The Senate result remains unclear, but projections indicate no party or coalition won a majority of seats, which a government would need to pass legislation.
An inconclusive election outcome would leave a split parliament in the euro zone's third-largest economy, paralysing a new government and potentially reigniting the euro-zone debt crisis.
The news hit as market sentiment had been improving on receding tail risks over the euro zone debt crisis.
"Uncertainty over the Italian election outcome and its impact will certainty keep the euro under strong pressure for some time," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
"A safety net has been provided over the past year in the euro zone and given the size of Italy's economy, I doubt that the situation will turn into a disaster, but we need to carefully monitor developments. It revives memories of risks in the euro zone," Saito added.
The focus will now be on an Italian treasury bill auction on Tuesday when borrowing costs could rise given the uncertainty over the election result, he said.
The euro was trading at $1.3058, hovering near a more than six-week low against the dollar of $1.3047 touched on Monday on jitters about political gridlock in Italy hampering the country's efforts to reform and slash its debts.
The yen at one point on Monday soared over 3 percent against the euro and 2 percent against the dollar. The yen's recent steep losses on bets of aggressive reflationary monetary policy in Japan have made it vulnerable to sharp reversals.
On Monday the yen rose to a three-week high of 90.85 yen from its intraday low of 94.77 touched earlier in the day, its lowest since May 2010. The yen also surged to 118.74 against the euro from its day's low of 125.36.
The yen was trading at 92.13 early on Tuesday against the dollar and at 120.32 against the euro.
Traders said the plunge in the dollar and the euro against the Japanese currency has provided fresh opportunities to buy these currencies against the yen, with many market players still seeing a weak yen trend continuing.
Credit Agricole's Saito expected markets to be volatile this session, with testimony later in the day from Federal Reserve Chairman Ben Bernanke. Investors will be seeking further clues of when the Fed intends to slow or stop buying bonds.
Financial markets were rattled last week by minutes of the Fed's January meeting showing some Fed officials were mulling scaling back its strong monetary stimulus earlier than expected.
U.S. benchmark Standard & Poor's 500 Index .SPX suffered its worst one-day percentage decline since November 7 on Monday.
U.S. Treasury debt prices rose and benchmark yields dipped to the lowest level in a month on Monday on the uncertainty over whether Italy would be able to form a stable government.
Safe-haven buying pushed gold about 1 percent higher on Monday.
Editing by Eric Meijer