Hello Kwok,
Actually, there is a problem with the Nios II IDE watchpoint feature, which is fixed in the next, as yet unreleased, version 1.1 of Nios II IDE. There is a powerful alternative though via FS2 console. You can use the FS2 command line tools to set a data breakpoint, and even trigger actions when the particular piece of data you are watching for appears on the Avalon bus. Actions include halting the Nios II processor, or beginning execution trace.
To enable FS2 functionality in the NIOS II IDE, check the box for FS2 on your application project's Run configuration page, Debugger tab.
First Silicon Solutions is an Altera partner, providing at no cost, included with your Nios II Development Kit, 2 data breakpoints, 2 hardware breakpoints, and 32 frames of trace data. Upgrades for additional breakpoints and deep trace buffer are available from FS2.