MANILA - Philippine shares on Tuesday tracked sharp losses on Wall Street overnight, as equity investors around the world took a breather from recent highs.

The Philippine Stock Exchange Index was down 2.74 percent to 8,379.83 in early trading, poised for a second straight day of losses.

The peso opened at P51.65 against the dollar from P51.51 on Monday.

"What's happening now is not really about fundamentals," said First Metro Securities consultant Aaron Say. "It's just been correcting, as some would put it. It would just be the return of rationality in the markets."

"It might not look good because we're seeing a sea of red. It's good in the sense that the market is taking a breather after an extended run," he told ANC's Market Edge with Cathy Yang.

The main index is in a "good" position as long as it does not fall below the 8,100 level, he said.

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Asian shares were set to fall sharply on Tuesday after Wall Street suffered its biggest decline since 2011 as investors' faith in factors underpinning a bull run in markets began to crumble.

Australian shares dropped 2.7 percent in early trade to their lowest level since October while futures suggest Japan's Nikkei is on course to fall more than 4 percent.

US stocks plunged in highly volatile trading on Monday, with the Dow industrials falling nearly 1,600 points during the session, its biggest intraday decline in history, as investors grappled with rising bond yields and potentially firming inflation.

"Since last autumn, investors had been betting on the goldilocks economy -- solid economic expansion, improving corporate earnings and stable inflation. But the tide seems to have changed," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

The benchmark S&P 500 fell 4.1 percent and the Dow 4.6 percent, suffering their biggest percentage drops since August 2011 as a long-awaited pullback from record highs deepened.

The S&P 500 ended 7.8 percent down from its record high on Jan. 26.

The trigger was a sharp rise in US bond yields following Friday's data that showed US wages increasing at the fastest pace since 2009, raising the alarm about higher inflation.

The 10-year US Treasuries yield rose to as high as 2.885 percent on Monday, its highest in four years and 47 basis points higher than 2.411 percent at the end of 2017.

The yield did pull back to 2.709 percent on a continued rout in equity markets.

The CBOE Volatility index, the closely followed measure of expected near-term stock market volatility and often seen as a gauge of investors fear, jumped 20 points to 30.71, its highest level since August 2015.

"For the last several months, whether it's stocks or commodities, risk-takers had been the winners. And that's what hedge funds, which now manage $3.2 trillion, have been doing," Mitsubishi UFJ's Fujito said.

"Their leveraged position is now being unwound. And it seems as though there are still some people who haven't run away (from the sell-off) yet. I would expect more instability," he added.

European shares also tumbled, with Germany's Dax hitting a 4-month low.

US junk bonds were sold heavily, with high-yield bonds ETF price hitting a 14-month low.

Keen to avoid risks, investors are closing their positions in other assets, including the currency market where a popular strategy has been to sell the dollar against the euro and other currencies seen as benefiting from higher interest rates in the future.

The euro eased to $1.2379, not far from last week's low of $1.2335, a break of which could usher in further correction after its rally to a 3-year high of $1.2538 by late last month.

Against the yen, which is often used as a safe-haven currency because of Japan's solid current account surplus, the dollar slipped to 109.14 yen, having lost one percent on Monday.

Bitcoin also tumbled, hitting a 12-week low of $6,600 . That represented a 66 percent fall from its record high of $19,666. It last stood at $6,792.

-- with reports from Reuters