HONG KONG: Asian shares stumbled on Tuesday, rattled by concerns over China's regulations for its once-freewheeling internet sector and the worldwide spike in COVID-19 infections driven by the Delta variant.

Markets were also tracking developments in Afghanistan, with the deteriorating situation in the capital Kabul having eclipsed overnight strength on Wall Street.

Chinese regulators issued draft rules on Tuesday for the internet sector, banning unfair competition and restricting the use of user data, the latest move in a crackdown on the country's powerful tech companies.

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"The news has sent shock waves through the sector and significantly dragged down the stock prices of several internet majors," said Zhang Zihua, chief investment officer at Beijing Yunyi Asset Management. "As the new rules have several tailored measures to weaken the leading position of dominant players."

The tech index in Hong Kong, where several of China's biggest internet giants are listed, fell 1.74%, compared with a 1% loss in the city's benchmark Hang Seng index.

Online literature platform operator China Literature led the slump in internet stocks, down 9.2%. Internet giants Tencent, Alibaba and Meituan slide 3.88%, 3.5%, and 1.72%, respectively.

"Evolving government policy initiatives are weighing on sentiment and causing some uncertainty. That said, regulation is a constant in China," said Catherine Yeung, investment director at Fidelity International.

"Investors must accept and incorporate this into their risk-reward frameworks and factor it into the assessment of the long-term business prospects for companies."

MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.1%. China's benchmark Shanghai Composite Index was down 1.05% while the blue-chip CSI300 index dipped 1.11%.

Elsewhere in Asia, Australian shares fell 0.98%, while Japan's Nikkei stock index edged down 0.11%.

In early European trades, the pan-region Euro Stoxx 50 futures were down 0.04% and London's FTSE futures dropped 0.17%. Those of Germany's DAX fell 0.01%. US stock futures, the S&P 500 e-minis, were down 0.27%.

Amid signs that the world's economic recovery is losing momentum, the continued spread of new COVID-19 variants and the impact on the global economy have also shaken market confidence.

A raft of Chinese data on Monday showed a surprisingly sharp slowdown in the world's second-largest economy, while the New York Federal Reserve's Empire State barometer of manufacturing business activity fell more than expected.

"Entering the second half of 2021, we think the investor concern is shifting from inflation to growth globally," said Wang Qi, CEO at MegaTrust Investment. "Inflation is still our top concern, but we are also worried about a potential economic slowdown."

Investors were also monitoring turmoil in Afghanistan, where thousands of civilians desperate to flee the country thronged Kabul airport after the Taliban seized the capital and declared the war against foreign and local forces over.

Wall Street rebounded on Monday, pushing up two of its three major indices, with the benchmark S&P 500 and the Dow industrials hitting record highs, as investors moved into defensive sectors and stocks recovered from initial losses.

The Dow Jones Industrial Average and the S&P 500 rose 0.31% and 0.26%, respectively. The tech-heavy Nasdaq Composite slipped 0.2%.

Investors are focused on when the Federal Reserve will rein in its easy money policies, with minutes from the central bank's latest meeting due on Wednesday.

Boston Federal Reserve Bank President Eric Rosengren said on Monday that one more month of strong job gains could satisfy the US central bank's requirements for beginning to reduce its monthly asset purchases.

The dollar ticked up against a basket of six major currencies, rising 0.083% to 92.699 after dropping to a one-week low on Friday.

In more risk-off moves, the yield on benchmark 10-year Treasury notes fell as demand for safe-haven US bonds ticked up.

The yield on benchmark 10-year Treasury notes dropped to 1.25% compared with its US close of 1.257% on Monday.

US crude dipped 0.03% to $67.27 a barrel. Brent crude fell to $69.47 per barrel.

Gold was slightly higher. Spot gold traded at $1,787.61 per ounce.