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SINGAPORE: Asian shares slid sharply and the safe-haven dollar held near a two-decade peak on Tuesday after Wall Street hit a confirmed bear market milestone on fears aggressive U.S. interest rate hikes would push the world's largest economy into recession.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.45% in volatile trade, clawing back some of its earlier losses.

Australia's benchmark S&P/ASX200 closed 3.55% lower while Japan's Nikkei stock index was down 1.32%, having fallen as much as 2% earlier in the session.

The negative tone in Asia followed a bleak U.S. session on Monday, which saw Goldman Sachs forecast a 75 basis point interest rate hike at the Federal Reserve's next policy meeting on Wednesday.

However, investors appeared to be shaking off the gloom heading into European trade with the pan-region Euro Stoxx 50 futures up 0.83%, German DAX futures 0.9% higher and FTSE futures rising 0.62%. U.S. stock futures also added 1.17%.

"While there is clearly a risk from a significant policy tightening, it remains unlikely that there will be a fully fledged recession, with the unemployment rate jumping by two or more percentage points," said Stephen Koukoulas, managing director at the Canberra-based Market Economics.

"Rather, it is certain growth will slow - which is the aim of the policy tightening - and by late this year, inflation pressures should start to ease."

In Hong Kong, the Hang Seng Index pared earlier losses to be up 0.26% after trading in negative territory for most of the day. China's CSI300 Index retraced some of its lost ground to be off 0.23%.

Expectations for aggressive U.S rate hikes have risen after inflation in the year to May shot up by a sharper than predicted 8.6%.

"The U.S. market is the biggest in the world so when it catches a cold the rest of the world does as well," said Clara Cheong, global market strategist at JP Morgan Asset Management.

"There will be short-term volatility in Asia but we think in the medium to longer term in Asia ex-Japan, earnings expectations have already been downgraded so there is a relatively brighter outlook here than other parts of the world."

Cheong said China monetary easing and the re-opening of ASEAN economies from COVID-19 lockdowns could shield the region from some of the financial market fallout.

On Wall Street overnight, fears of a U.S. recession kicked the S&P 500 down 3.88%, while the Nasdaq Composite lost 4.68%. The Dow Jones Industrial Average fell 2.8%.

The benchmark S&P 500 is now down more than 20% from its most recent record closing high, confirming a bear market, according to a commonly used definition.

Benchmark 10-year Treasury yields hit their highest since 2011 on Monday and a key part of the yield curve inverted for the first time since April as investors braced for the prospect that Fed attempts to stem soaring inflation would dent the economy.