Asian shares fell Tuesday morning and the euro came under pressure following a huge selloff in Europe as renewed eurozone debt woes added to already weak confidence in the global economy.
Equities lost out as traders sought out safe haven assets to take shelter from the gloom, with gold edging back towards its record high.
Tokyo fell 1.23 percent by the break, Hong Kong shed 1.21 percent, Sydney was 1.49 percent lower, Seoul fell 1.13 percent and Shanghai was 0.28 percent off.
"It's a very ugly start for local trade as once again we get dragged lower by the global macro concerns," said IG Markets analyst Ben Potter. "Today's lead is coming from the appalling session that was seen in European trade."
The falls extended selling from Monday after a dismal batch of US jobs data raised concerns of a double-dip recession in the world's biggest economy.
They also followed massive losses in Europe, where financials were heavily hit after International Monetary Fund chief Christine Lagarde warned banks needed extra capital to withstand any contagion from the eurozone debt crisis.
The head of the European Central Bank Jean-Claude Trichet also warned Monday of an immediate and imperative need for enactment of a second debt rescue for Greece, and tightened discipline in the management of eurozone economies.
London's FTSE 100 dropped 3.58 percent, in Paris, the CAC 40 fell 4.73 percent and Frankfurt's DAX plunged 5.28 percent to a two-year low.
US markets were closed on Monday for the Labor Day bank holiday
Adding to the European woes was news the European Union and International Monetary Fund left a critical audit of Greek finances unfinished saying more budget work was needed, while Athens admitted its deficit target was in trouble.
Also negative for the euro was news that German Chancellor Angela Merkel's Christian Democrats (CDU) suffered an election defeat in her home state Sunday, with the news unsettling the market, dealers said.
Selling of bank stocks was exacerbated by a US decision to take legal action against 17 leading international lenders over securitised mortgage trading at the heart of the 2008 financial crisis.
ECB data showed that eurozone banks have deposited record amounts of overnight funds with it, a signal of reluctance by banks to lend to each other.
The ongoing troubles in the eurozone weighed on the region's currency.
The euro bought $1.4074, compared with $1.4109 late in London Monday. The European unit fell to a one-month-low of $1.4064 at one point.
It was also at 108.18 yen from 108.57 yen.
The dollar bought 76.88 yen compared with 76.86 yen late Monday in London.
The price of gold hit 1,898.90 an ounce at 0200 GMT, closing in on its record high $1,913.50 seen last month.
"The selloff in European risk assets is becoming disorderly," said Tim Condon, economist at ING.
"US Treasuries may be a preferred safe-haven asset but Asian local currency government bonds also are candidates," he told Dow Jones Newswires.
Oil was down, with New York's main contract, light sweet crude for delivery in October, diving $2.53 to $83.92 per barrel. Brent North Sea crude edged up 49 cents to $110.57.