SYDNEY, NSW, Australia - Stocks in Asia initially extended gains following an overnight rally in Europe and Wall Street.

"There's everything to like about the rally in EU and U.S. equity markets," Chris Weston, the head of research at Pepperstone Group Ltd in Australia told Reuters Thomson Monday.

"Financials outperformed, with 95% of stocks in the S&P 500 gaining on the day," he said, adding that "clearly investors are seeing the world in a new light".

However late in the day the indices began turning south and momentum built. By the close all the major indices were deep in the red.

The Australian All Ordinaries sank 32.80 points or 0.47 percent to 7,009.90.

Shaw and Partners investment advisor Craig Sydney said Tuesday's session was weak, but only when compared to Monday's surprisingly strong session.

"We are only back to where we were last Wednesday," he told The Sydney Morning Herald Tuesday.

"I think there is an element of profit taking and we were probably getting a bit ahead of ourselves this morning...I guess our market, unlike the US, is not so dominated by tech."

In Japan the Nikkei 225 dived 255.33 points or 0.86 percent to 29,408.17.

The Hang Seng in Hong Kong shed 356.71 points or 1.21 percent to 29,095.86.

China's Shanghai Composite closed down 42.81 points or 1.21 percent at 3,508.59.

The U.S. dollar advanced further against most currencies. The euro slipped further to 1.2022. The British pound dipped to 1.3889. The Japanese yen inched down to 106.82. The Swiss franc was weaker at 0.9160.

The Canadian dollar dipped to 1.2677. The Australian dollar fell a few points to 0.7762. The New Zealand dollar was slightly lower at 0.7247.

Overnight on Wall Street, the Dow Jones rallied 603.14 points or 1.95 percent Monday, to close at 31,535.51.

The Nasdaq Composite did better, rising 396.48 points or 3.01 percent to 13,588.83.

The Standard and Poor's 500 advanced 90.67 points or 2.38 percent to 3,901.82.