Asian shares were pinned near five-month lows on Tuesday as concerns that slower growth in China and reduced U.S. monetary stimulus could hurt some emerging economies dependent on exports and foreign capital.
Investors are now focusing on whether the central bank of Turkey, one of the epicentres of the latest rout in emerging markets, could salvage the lira at an emergency policy meeting later in the day, after India surprised markets by raising rates.
European shares are seen steady to slightly higher with German DAX seen rising 0.1 percent and French shares seen gaining as much as 0.3 percent.
"I do not necessarily think the world economy will be severely damaged by the latest troubles in emerging economies, but markets are getting nervous," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.
MSCI's broadest index of Asia-Pacific shares outside Japan briefly dipped to a five-month low, extending a 3.8 percent loss in the past three days before recouping the losses to trade almost flat.
Japan's Nikkei average rose 0.2 percent though it briefly fell to a 2 1/2-month low.
Investors drew some comfort from the news that a Chinese trust firm had reached an agreement to resolve a troubled high-yield investment product, just days away from what could have been a precedent-setting default in China's shadow banking system.
While the agreement alleviated fears that an immediate default could spark a run on similar products, concerns over the rapid expansion of China's shadow banking sector, a key source of financing for local corporations, could fester.
"The deal to avert default is a source of relief for many, but it's a clear warning on the scale of the risks that still remain with other trust products due to mature this year," said Jackson Wong, Tanrich Securities' vice-president for equity sales in Hong Kong.
A contraction of demand in China, the world's second largest economy, has repercussions for many emerging economies that have boomed on exports to China, including countries as far as Brazil and Argentina.
The Turkish lira remained volatile, trading at 2.2690 to the dollar, though it kept some distance from the record low of 2.3900 hit on Monday.
The lira, which has been battered by the corruption scandal that rocked Prime Minister Tayyip Erdogan's government, rebounded from a record low after the central bank called an emergency meeting on Tuesday.
The central bank is expected to raise rates to defend the sagging lira after its decision not to do so last week sent the currency into freefall. Its statement is due at 2200 GMT, midnight in Turkey.
"The market is expecting a rate hike of one percent or more and possible capital controls. Whether their steps can calm markets is one big area of focus," said Masafumi Yamamoto, chief strategist at Praevidentia Strategy.
Higher interest rates tend to help attract foreign capital, prompting some countries, including Brazil and India, to raise rates last year.
India's central bank surprised markets by raising rates again on Tuesday, though the Indian rupee showed a limited reaction, trading at 63.05 rupee to the dollar.
Although it had fallen in the past couple of days in sympathy with other emerging currencies, it has kept some distance from a record low of 68.85 to the dollar hit in August.
Still, expectations that the U.S. Federal Reserve will scale back its bond buying further have put pressure on risk assets, especially emerging markets dependent on external financing. The Fed starts its two-day policy meeting later in the day.
Many expect the Fed to reduce its monthly bond purchase by $10 billion as it did in December, although some players speculate the latest turmoil in emerging markets could make the Fed more cautious.
Major currencies marked time ahead of the Fed's policy meeting, with both the euro and the yen little-changed at $1.3676 and 102.69 yen to the dollar respectively.
Disappointing guidance from Apple Inc hit the shares of its suppliers across Asia.
Apple missed Wall Street's target for iPhone sales over the crucial holiday shopping season and offered a weaker-than-expected forecast for this quarter, sending its shares down sharply after the bell.