Investors in Tokyo, Seoul and Sydney picked up on the mounting anxiety evident in the United States and Europe, where fresh carnage ripped across the markets on Thursday.
"The bears returned aggressively overnight as very disappointing US economic data and fears over the stability of European banks had traders reaching for the sell button," IG Markets analyst Ben Potter said in Australia.
"It looks like we're set for a very ugly end to the week as fear and panic-driven trade once again dominate the market," he said.
"We could have the added pressure of traders looking to close their positions ahead of the weekend given the high levels of uncertainty."
About an hour after opening, Japan's Nikkei share index had lost 2.17 per cent to 8,750.02 with banking and financial shares particularly in the firing line.
Australia's benchmark S&P/ASX 200 was down 2.55 per cent at 4,142.60. Hong Kong dived 2.71 per cent to 19,473.38 while Singapore's headline share index fell 2.55 per cent to 2,752.94 in opening trades.
In Seoul, the benchmark KOSPI was down a hefty 3.87 per cent at 1,788.59 with South Korean exporters such as Samsung Electronics and Hyundai Motor hit hard.
In Singapore, shares opened 2.5 per cent lower.
Chinese shares opened down around 1.6 per cent, tracking the sharp losses in overseas markets on fears of weakness in the economies of the United States and Europe, dealers said.
The Shanghai Composite Index was down 39.82 points to 2,519.65.
The worldwide selloff came after Wall Street investment bank Morgan Stanley warned that the US and eurozone economies were "dangerously close" to a double-dip recession.
Stocks were further punished by a fresh round of gloomy economic data from the United States such as jobless claims, and growing doubts about the ability of European banks to withstand the 17-nation eurozone's debt crisis.
The Dow Jones Industrial Average was down 3.7 per cent at the closing bell, while the broader S&P 500 slumped 4.5 per cent and the tech-heavy Nasdaq Composite plummeted 5.2 per cent.
Losses were even worse in Europe on Thursday, as London stocks closed down 4.5 per cent, Paris fell 5.5 per cent and Frankfurt dropped 5.8 per cent.
Oil prices slumped as traders fretted that an economic downturn could erode global energy demand. Early in Asia, West Texas Intermediate crude for delivery in September was down US$1.05 from its New York close at US$81.33 a barrel.
Gold and US Treasury bonds -- both safe havens in times of trouble -- broke record ground with bullion reaching US$1,837.50 per ounce on the Hong Kong spot market from a previous high of US$1,826.10 in New York.
A report in The Wall Street Journal that the US Federal Reserve was worried about the liquidity of major European banks contributed to the selloffs in European markets.
French lenders came under especially intense pressure, with Societe Generale losing more than 12 per cent.
"The concern is that the escalating European sovereign debt crisis -- which is now engulfing larger countries -- and the potential fallout for the banking sector and financial markets, could provide a killer blow," said Nick Kounis, an economist at ABN Amro in Europe.
The tumult played out on the currency markets with the euro at US$1.4321 and 109.75 Japanese yen, from US$1.4337 and 109.70 yen late in New York.
The yen was at 76.64 to the dollar in early Japanese trade, from 76.52 overnight in New York.
"Concerns about a slowdown in the US and global economies, the European debt problems and the stronger yen are all going to weigh on the market," Hiroichi Nishi, general manager at Tokyo's SMBC Nikko Securities, told Dow Jones Newswires.
The concerns are not confined to the developed world. At Deutsche Bank, economists focused on the impact of slower Chinese growth on the rest of the world.
They foresaw a "soft landing" for China this year and next, but concluded that "global stock markets will likely be negatively impacted by a Chinese slowdown".
They said the world's second-biggest economy would grow 8.9 per cent this year, down from 10.3 per cent in 2010, and by 8.3 per cent in 2012, "mostly due to the effect of monetary tightening".
Elsewhere, stock markets across Latin America, led by regional heavyweight Brazil, fell sharply Thursday as recession fears sent global markets down.
Shares on Sao Paulo's stock exchange, the largest in Latin America, fell 3.52 per cent. Brazil's benchmark Bovespa index closed at 53,134 points, after winning back some ground after a more than four per cent drop during the day.
"The Brazilian market is following international markets, on a wave of aversion to (investing in) risky shares," Rossano Oltramari, chief analyst at brokerage XP Investimentos, told AFP.
Markets plunged in Europe and the United States after Morgan Stanley said its new forecasts showed the United States and the eurozone "hovering dangerously close to recession."
The Mexico bourse -- the region's second-largest -- closed down 2.36 per cent. In Argentina, the benchmark Merval index plummeted 4.11 per cent and in neighboring Chile, shares fell 1.72 per cent.
The Colombian share market lost 3.15 per cent, and the Peruvian market shed 2.32 per cent.
- AFP/ck
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