Asia stocks are mixed after Monday's sell-off in Europe

Japan's Nikkei 225 index fell 2%, Hong Kong's Hang Seng shed 1.4%, while South Korea's Kospi was little changed.

On Monday, European markets saw a sell-off that pushed the region's main indexes some 4% lower.

Analysts expect market volatility to continue as policymakers try to find a solution to the debt problem.

"The trend of foreign investors flocking to safe-haven assets, and out of equities, will continue to be today's theme," said Kazuhiro Takahashi from Daiwa Securities.

Financial stocks declined in early trade, taking their lead from Europe where fears are building over the state of banks and their balance sheets.

Commonwealth Bank of Australia lost 0.5%, and National Australia Bank, the country's third-largest lender by market value, fell 1.9%. Japan's Mitsubishi UFJ fell 1.8% in Tokyo.

Fears over the state of European banks have come sharply back into focus after one of the region's best-known executives warned that a number of lenders were at risk of going bust.

Deutsche Bank's outgoing chief executive, Josef Ackermann, said on Monday that some European banks would go bust if they were forced to recognise in their accounts the existing losses on government debts they own, based on current market prices for government bonds.

Analysts are also worried that the European debt problems will now engulf Italy, one of the continent's biggest and most interlinked economies.

Italy is in the process of trying to implement an austerity package that is needed to put its finances in order, despite rolling back on a number of its key pledges.

Analysts said uncertainty about developments in some of Europe's biggest economies was denting market sentiment.

"It's the European disease that is infecting markets all around the world at the moment," said Michael Heffernan of Austock Group.

At the same time, fears about the US, the world's biggest economy, slipping into a recession have been gathering pace.

Data out last week showed that no new jobs were added to the US economy in August. To make matters worse, the White House warned that the unemployment rate in the US is likely to stay around 9% till the end of 2012.

President Obama is scheduled to deliver a key speech on 8 September to outline his much-anticipated jobs creation plan.

European markets saw one of the year's biggest sell-offs on Monday.

Frankfurt's Dax index ended the day 5.3% lower, with the Paris Cac 40 4.7% lower and the FTSE 100 down 3.6%, posting its second-biggest fall this year.

Wall Street and US markets were closed on Monday for a public holiday. However, US stock futures fell more than 2% on Monday in electronic trading.

The declines in stock markets saw investors turn to less riskier assets.

Gold, which is considered a safe-haven investment in times of economic uncertainty, was just short of $1,900 an ounce, close to its to record high.

Japanese government bonds, another relatively safer investment, also gained.