Indian shares extended gains early Wednesday to record level before reversing course to trade little changed ahead of the Reserve Bank of India's policy decision.
Also, weighing on sentiment were a private survey showing factory growth eased last month and conflicting signs over the state of U.S.-China trade relations.
"Markets have already factored in the policy meet, probably since last quarter," said Vinod Nair, head of research at Geojit Financial Services.
Thirty-seven of 63 economists in a Reuters poll last week said the Reserve Bank of India will raise rates on Wednesday, while inflation has been above the central bank's medium-term target of 4 percent for eight months and expected to stay that way through to the end of next year.
Twenty-two economists said the next hike would come later this year, or early in 2019.
The Nikkei Manufacturing Purchasing Managers' Index decreased to 52.3 in July from June's 53.1, largely pressured by a modest weakening in demand and output. This was below a Reuters poll median of 53.0.
A Bloomberg report on Tuesday said that the United States and China were seeking to resume talks to defuse a battle over import tariffs.
However, later reports that the White House plans to propose tariffs of 25 percent instead of the initially proposed 10 percent on $200 billion of imported Chinese goods injected uncertainty back into global financial markets.
A source familiar with the plan said the announcement could come as early as Wednesday.
MSCI's broadest index of Asia-Pacific shares outside Japan rose as much as 0.2 percent before retreating to trade 0.1 percent lower.
The broader NSE Nifty was up 0.03 percent at 11,360.25 as of 0701 GMT, while the benchmark BSE Sensex was 0.08 percent lower at 37,575.68.
"Concern is that the trend of the market has been very narrow, driven only by blue chip stocks even though Q1 has been very positive," Nair said.
Banks and automobiles were the top drag with Maruti Suzuki India Ltd shedding as much as 2.3 percent on lacklustre July sales, while Tata Motors Ltd slumped 5.3 percent after it reported its first quarterly loss in nearly three years on Tuesday.
HDFC Bank and ICICI Bank declined 0.9 percent and 1.5 percent, respectively.
Among gainers, Reliance Industries Ltd rose about 1.5 percent after an international arbitration panel issued an award in favour of a consortium that includes the company, rejecting the government's claims in respect a gas dispute.
Oil marketing companies Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd climbed as Brent futures receded further.