-- Most Asian stocks retreated on Tuesday amid no signs that U.S. lawmakers were close to raising the debt ceiling,  with a rally in Japanese markets now running out of steam after reaching 33-year highs. 

The index reversed early gains and fell 0.6% from a 33-year high, while the lost 0.4% as markets questioned just how much further a recent rally in local stocks could run.

Japanese stocks have been on a tear over the past two weeks, aided largely by a strong earnings season and bets that the Bank of Japan will maintain its ultra-dovish policy.

Data on Tuesday showed that the country’s unexpectedly grew in May, while growth in the hit a record high, pointing to some resilience in the world's third-largest economy.

But with stocks now trading at levels last seen during the 1990s bubble era, traders were counting on some consolidation.

Chinese markets also sank on Tuesday, as markets feared a resurgence in Sino-U.S. trade tensions after China failed chipmaker Micron Technology Inc (NASDAQ:) in a security review, barring it from selling some products in the mainland. 

Chinese indexes were also headed for steep losses in May as a string of economic indicators showed that a post-COVID rebound in the country was running out of steam. 

China’s and indexes fell about 0.5% each, while losses in Hong Kong-listed Chinese stocks pulled the 0.4% lower. 

Investors viewed the Micron failure as retaliation for the White House introducing strict export curbs on semiconductor technology to China. But the move also sparked some gains in Asian chipmaking stocks, as markets bet that local manufacturers will turn to regional chipmakers for their requirements. 

Broader Asian markets were depressed as U.S. lawmakers failed to agree on a deal to raise the debt ceiling and avoid a default. Still, President Joe Biden and House Speaker Kevin McCarthy both expressed optimism over ongoing talks, and downplayed fears of a U.S. default.

The prospect of a U.S. default still kept Asian markets on edge, as traders feared the economic fallout from such an event. Soft economic indicators from China also dampened sentiment toward Asian stocks.

Among outliers, South Korea’s rose 0.7%, aided by data showing a recovery in , while Australia’s rose 0.3%. Business activity data in Australia also read higher-than-expected for May, but remained in contraction territory.

In Southeast Asia, Thailand’s fell 0.2%, remaining under pressure as markets awaited the formation of a new government after a surprise victory for the opposition in elections held last week.