MPs on Tuesday returned to Westminster to vote on a series of proposals dealing with Britain's exit from the European Union after roundly rejecting Prime Minister Theresa May's controversial deal two weeks ago.

In a closely watched series of votes, they rejected a plan to put back the date of leaving the EU if no new agreement is agreed by the end of next month.

They then backed a proposal asking May to replace her deal's so-called backstop provision preventing a hard border with Ireland -- a proposal immediately rejected by an EU spokesman.

While observers still expect lawmakers to pass a bill that will avoid a no-deal Brexit -- which economists warn could be economically catastrophic -- the latest developments raised the prospect of it happening.

"The pound fell because (the) vote leaves a no-deal Brexit on the table, but it has not collapsed into oblivion because at present there is no alternative to May's deal and we are not yet at the no-deal do-or-die moment," said Neil Wilson, chief market analyst at Markets.com.

"Could she really get it through at the last? It would be a remarkable coup."

- Groundless optimism? -

But Minori Uchida, Tokyo head of global markets research at MUFG Bank, sounded a note of caution.

"Players are still thinking that a hard Brexit will be avoided in the end, but the optimism is groundless," he told AFP. "Hard Brexit risks are still here."

The pound sank around one percent against the dollar and the euro after the votes but it managed to edge back slightly on Wednesday.

Equity markets swung as dealers look ahead to the end of the Federal Reserve's latest policy meeting later in the day, with hopes for some guidance on its plans for interest rates this year.

Wednesday also sees the start of high-level US-China trade talks, with Beijing's top economic diplomat due to meet Donald Trump during the two-day gathering.

However, while markets have been supported by optimism over the talks in recent weeks, the US decision Monday to charge Chinese telecom titan Huawei on several counts of fraud and tech theft has muddied the waters.

Still Treasury Secretary Steven Mnuchin insisted the two issues were not linked and said he saw the chance of a trade deal if China offered the right concessions.

Hong Kong and Shanghai slipped 0.1 percent in the morning while Tokyo went into the break 0.5 percent down.

Wellington, Taipei and Manila were all lower but Sydney was flat, while Singapore and Seoul each edged up 0.1 percent.