Asia stocks in the red as traders wait on the Fed

 Asia's stock markets fell in thin trade on Wednesday, as investors contended with signs of a softening U.S. economy, and were in full flight from U.S. regional lenders, ahead of an expected U.S. interest rate hike later in the day.

Holidays closed markets in China and Japan. Hong Kong's stock exchange was open and dropping, dragging MSCI's broadest index of Asia-Pacific shares, ex-Japan, (.MIAPJ0000PUS) down 1%.

Tumbling regional bank stocks (.KRX) weighed on Wall Street, and oil was also left nursing large losses with fears that banks tightening up on lending along with a slowing job market were harbingers of a looming broader slowdown.

Bonds and gold held gains. The dollar, slipping, was caught in the crosswinds of falling yields and rising nerves. S&P 500 futures edged up 0.1%; European futures rose 0.5%, but the mood was cautious with banks in the crosshairs.

On Tuesday, U.S. regionals were hammered, with PacWest Bancorp (PACW.O) down 27.8%, Western Alliance Bancorp (WAL.N), down 15.1% and Comerica Inc (CMA.N) down 12.4%.

"Short sellers, it seems, have gone to town, and as any equity trader will attest, when you know there is a wall of sellers out there, you stand aside," said Chris Weston, head of research at brokerage Pepperstone in Melbourne.

After the failures of Silicon Valley Bank and Signature Bank in March, the collapse of First Republic over the weekend has confidence in smaller lenders flagging and investors more broadly bracing for banks to tighten up lending in response.

In Europe, where the crisis of confidence forced Credit Suisse into the arms of larger rival UBS six weeks ago, banks are sharply turning off the credit taps, data on Tuesday showed, perhaps making a case for a smaller rate hike this week.

"This reinforces the idea of 25bps from the ECB this week rather than 50bps," said NatWest Markets' rates strategist Jan Nevruzi. "And also plants the seed in our mind that if that is what happened in Europe, it could be much worse here in the U.S."

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