Equities surged in the last two months of last year on expectations the US central bank will slash interest rates several times this year as inflation comes down, the labour market softens and the economy heads towards a soft landing.
However, analysts had warned that the rally was going a little too far and investors should prepare for a pullback, with tech titans such as Apple and Amazon likely to take a hit.
"The most common concern or belief we have heard from investors is that overbought conditions and euphoric sentiment will set up for a reversal to start 2024 in both bond yields" and stocks, said Dennis DeBusschere of 22V Research.
"The overbought conditions and sentiment readings are tough to argue with."
On Wall Street, the Nasdaq slumped 1.6 percent and the S&P 500 was also in the red, though the Dow enjoyed a small gain.
And the negative mood continued in Asia, where Hong Kong, Sydney, Seoul and Taipei were among the biggest losers, while Mumbai, Singapore, Wellington, Bangkok, Manila and Jakarta were also down.
Shanghai, however, edged up.
The year "has kicked off with risk retrenchment", said Vishnu Varathan at Mizuho Bank.
"Whether this is a durable purge from excessive exuberance or merely (pre-US jobs data) profit-taking is unclear."
The first major releases of the year come this week, with minutes from the Fed's December policy meeting due later Wednesday, providing investors with a fresh snapshot of officials' thinking with regard to the rates outlook.
The post-meeting statement had indicated three cuts this year, though market participants are tipping far more.
On Friday, the closely watched non-farm payrolls (NFP) figures will come in, which lay out how the economy is faring after the Fed ramped borrowing costs to a 22-year high to slay inflation.
Bank boss Jerome Powell has said tempering the jobs market was crucial in the fight against prices, though data in recent months has shown inflation coming down even as labour demand remains high, suggesting the economy is holding up well.
International Monetary Fund boss Kristalina Georgieva said she was optimistic the Fed will be able to deliver an economic soft landing.
The bank's actions have "brought the desired impact without pushing the economy into recession", she told Christiane Amanpour on CNN International. "Where the US economy is today, definitely a soft landing."
Developments in China are being closely followed after reports that Beijing had removed a top gaming industry official involved in planned curbs on the sector that caused a multibillion-dollar rout in the country's tech giants.
The draft restrictions published by the government regulator said they were aimed at limiting in-game purchases and preventing obsessive gaming behaviour.
- Key figures around 0700 GMT -
Hong Kong - Hang Seng Index: DOWN 1.0 percent at 16,625.53
Shanghai - Composite: UP 0.2 percent at 2,967.25 (close)
Tokyo - Nikkei 225: Closed for a holiday
Dollar/yen: UP at 142.09 yen from 141.99 yen on Tuesday
Euro/dollar: UP at $1.0961 from $1.0946
Pound/dollar: UP at $1.2646 from $1.2621
Euro/pound: DOWN at 86.67 pence from 86.70 pence
West Texas Intermediate: FLAT at $70.36 per barrel
Brent North Sea Crude: FLAT at $75.92 per barrel
New York - Dow: UP 0.1 percent at 37,715.04 points (close)
London - FTSE 100: DOWN 0.2 percent at 7,721.52 (close)
dan/sco
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