Asian markets mostly fell Thursday and the euro sat around four-month dollar lows as eurozone fears reared again, with Italy's politicians still unable to form a government weeks after an election.
The dollar also slipped as traders moved into the safety of the yen owing to growing uncertainty over the global outlook.
Tokyo fell 1.26 percent, or 157.83 points, to 12,335.96 and Sydney slipped 0.57 percent, or 28.5 points, to close at 4,966.5, although Seoul was flat, edging 0.08 points higher.
In the afternoon Hong Kong was 1.04 percent lower and Shanghai tumbled 2.57 percent, with banks hurt after China on Wednesday told them to step up controls on wealth management products in a bid to boost transparency.
The losses followed a sell-off in Europe and the United States ahead of the reopening of banks in Cyprus after almost two weeks, under strict capital controls following the weekend's bailout that included a tax on some savings.
"Investors are not worried about Cyprus per se, as it comprises such a small component of Europe's GDP," SMBC Nikko Securities general manager of equities Hiroichi Nishi told Dow Jones Newswires.
But they are concerned about "the 'contagion effect' of a possible run on banks spreading to other parts of the eurozone," he said.
"It may yet have broader implications for economies there and lead to a longer-lasting 'risk-off' mentality," he added.
In Italy centre-left leader Pier Luigi Bersani struggled to form a coalition after polls in February that saw an anti-austerity party burst on to the political scene, holding the sway of power.
Bersani failed in talks with political parties to form a government after the anti-cuts Five Star Movement rejected his overtures.
"Only a mentally ill person could have an itching desire to govern right now," Bersani said during talks with the group, which he has repeatedly tried to woo.
Business leaders and trade unions sounded the alarm this week over the parlous state of the eurozone's third largest economy, which is suffering its longest recession for 20 years.
Adding to traders' concerns was a rise in Italian borrowing rates for five-year debt to a five-month high as demand was weak in an closely watched auction.
Renewed fears over the eurozone sent the single currency tumbling below $1.28 for the first time in four months in London on Wednesday and edging further in New York.
In Asian trade Thursday it bought $1.2797, compared with $1.2779 late in New York Wednesday. It also fetched 120.54 yen from 120.63 yen.
The dollar bought 94.20 yen, down from 94.40 yen in New York.
On Wall Street the Dow fell 0.23 percent, the S&P 500 was flat and the Nasdaq added 0.12 percent.
Shares also fell in Europe, with Frankfurt, Paris and Milan all losing around one percent.
On oil markets prices rose, with New York's main contract, light sweet crude for delivery in May up 10 cents to $96.68 a barrel and Brent North Sea crude for May 25 cents higher at $109.94.
Gold was at $1,604.50 an ounce at 0645 GMT compared with $1,594.10 late on Wednesday.
In other markets:
Taipei fell 0.35 percent, or 27.24 points, to 7,866.88.
Hon Hai lost 0.96 percent to Tw$82.7 while Taiwan Semiconductor Manufacturing Company was 0.5 percent lower at Tw$100.0.
Wellington rose 0.24 percent, or 10.70 points, to 4,422.75.
Telecom rose 0.86 percent to NZ$2.34 and Contact Energy added 0.53 percent to NZ$5.70.
Manila was closed for a public holiday.