Deepening economic gloom and fears about the global finance sector pushed Asian shares to their lowest level this month on Wednesday, prompting investors to move to low-risk assets such as government bonds.
European shares also opened lower, while the euro fell to a new 2-½ month low against the dollar following rating agencies' warnings that a deep recession in Eastern Europe will inflict more damage on struggling Western European banks.
On top of weak U.S. manufacturing and housing reports on Tuesday, the fate of U.S. auto makers is also keeping investors concerned after General Motors Corp and Chrysler LLC requested nearly $22 billion in additional U.S. government loans.
"The outlook's so shocking. All economic numbers everywhere are so bad, it's very, very difficult to see this market making any headway in the near term," said David Spry, research manager for broker FW Holst in Australia.
The MSCI index of Asia-Pacific stocks outside Japan lost about half a percent, after earlier touching its lowest since Jan. 26. Japan's Nikkei average fell 1.5 percent to its lowest close in nearly four months.
The index is headed for its sixth losing session out of the past seven, bringing losses so far this year to about 11 percent.
Still Japanese stocks are faring better than U.S. markets, where the S&P 500 and the Dow Jones Industrials average are near their lowest levels since 11-year lows hit on Nov. 20.
The global declines come despite government actions to prop up their economies, including a $787 billion U.S. stimulus bill that was signed into law on Tuesday by President Barack Obama.
Obama was expected to lay out a strategy later in the day to stem U.S. home foreclosures and address the country's housing crisis -- one of the chief causes of the global financial crisis and sharp economic slowdown.
The moves come after data on Tuesday showed factory activity in New York State fell to a record low in February, while homebuilder sentiment held at near all-time lows.
U.S. and European woes are hitting emerging economies hard. Taiwan's economy shrank at a record pace of more than 8 percent in the fourth quarter, pushing the island into recession.
Among Asia's hardest hit markets was Shanghai, where its main index slumped nearly 5 percent as shrinking turnover suggested inflows of fresh money into the market were drying up.
Stock markets in Australia and South Korea fell more than 1 percent each, though Singapore and Taiwan managed small gains. India's Sensex ended slightly lower.
Among the leading decliners of the day were Asian financial firms from Japan's Mitsubishi UFJ Financial Group to South Korea's KB Financial Group.
But Toyota Motor Corp rose 1.7 percent after the automaker said it planned to halt production at its Japanese factories for three days in April and raise output slightly in May as it expects to make progress in cutting inventory levels.
EURO HIT
The euro kept tumbling following Moody's report saying banks in Eastern Europe with large loan books faced downgrades and their parent banks' ratings could also weaken.
Standard & Poor's joined the fray, saying in an interview with Reuters that the growing difficulties faced by Western banks in supplying funding to their subsidiaries in emerging Europe could prompt an overall ratings view for the region's banks.
"With growing credit concerns in Europe, investors seem to be continuing to unwind their positions and securing cash in dollars," said Saburo Matsumoto, senior manager at Sumitomo Trust Banking in Japan.
The euro fell as low as $1.2560, trading at its lowest levels since early December, although it later rebounded in Asian trade to above $1.26 against the U.S. currency from late U.S. trade on Tuesday.
The dollar was steady at around 92.5 yen against the Japanese currency after it rose to a more than one-month high on Tuesday, helped in part by safe-haven bids.
Asian emerging currencies have also been hit as investors shed riskier assets.
The South Korean won fell 0.8 percent to end at 1,467.2/8.9 per dollar compared to Tuesday's domestic close, marking a seventh consecutive session of declines that brings its losses during that period to 5.7 percent.
Regional bonds benefited from the move towards less risky assets. March 10-year Japanese government bond futures rose 0.26 point to 139.64, while the benchmark 10-year yield fell 3 basis points to 1.250 percent.
In commodity markets, U.S. crude futures edged lower to trade well below $35 a barrel after slumping nearly 7 percent on Tuesday. However, gold edged up in Asian trade, underpinned by its safe-haven appeal.
