Most Asian markets ended lower Wednesday as financials broadly declined after big overnight losses on Wall Street and on concern about European banks.
Steelmakers such as Posco also fell on a weak outlook for prices.
The Nikkei 225 Average dropped 1.5%, its third consecutive decline, to end at 7,534.44, its lowest finish since October.
China's Shanghai Composite, one of the best performers in the world so far in 2009, plunged 4.7% for its biggest single-day percentage loss since November, as investors locked in profits.
"The recent rally [in Chinese shares] was driven by liquidity, but the market was running ahead of fundamentals as economic data is pointing to the fact that nothing has changed. We may have seen the short-term peak there," said Linus Yip, strategist at First Shanghai Securities.
Some other markets recovered in the afternoon as U.S. futures pointed to a higher opening after Tuesday's sharp declines. The Dow Jones Industrial Average futures were recently up 75 points, while Nasdaq futures gained 10.75 points.
Investors are keen to see how Wall Street responds to the long-term recovery plans submitted by U.S. auto makers General Motors and Chrysler; Chrysler asked for $2 billion in government aid and GM asked for a further $16.6 billion, saying it could run out of money as soon as next month while pledging to cut 47,000 jobs this year.
Hong Kong's Hang Seng Index bounced off early lows to end up 0.6%, with Yip attributing the recovery to investors covering their short-sales positions. Taiwan's Taiex gained 0.2%, while in afternoon trading, India's Sensex rose 0.6% and Singapore's Straits Times advanced 0.7%.
The recovery in Hong Kong was also helped by shipping-related stocks after a key index for marine-freight rates advanced overnight, with China Cosco Holdings Co. (HK:1919: news , chart , profile ) up 7.3% and China Shipping Development Co. (HK:1138: news , chart , profile ) climbing 10.6%.
Earlier in the day, Australia's S&P/ASX 200 ended 1.5% lower and South Korea's Kospi fell 1.2%, while New Zealand's NZX 50 lost 1.9%.
"Unless Wall Street pulls its nose up, it's pretty awful. It's hard to see any redeeming features," said Goldman Sachs JBWere broker Peter Sigley in New Zealand.
Financials were broadly under pressure across Asia, as concerns about banks in Eastern Europe added to the gloom.
"Eastern Europe looks like a basket case," said Goldman Sachs JBWere senior institutional trader Patrick Crabb. "It's all turning to custard again."
Japan's Mitsubishi UFJ Financial Group ended down 3.1% and Nomura Holdings lost 6%, while South Korea's KB Financial Group dropped 6.9%.
Westpac Banking Group fell 1.8% in Sydney after it said it had a near six-fold increase in charges for bad and doubtful debts in its first quarter.
Chinese banks dropped in Shanghai after Morgan Stanley cut their earnings estimates and share-price targets, with Industrial & Commercial Bank of China falling 4.2% and China Construction Bank losing 4.3%.
"We believe the Chinese banks are entering a new phase characterized by low margins, low growth, and relatively high credit risk due to easing monetary policy and a slowdown in the economy," the brokerage wrote in a report.
China shares were extending Tuesday's fall, with reports that regulators were investigating whether some of January's hefty yuan-denominated bank lending has flowed into stocks.
"People are worried that the investigation would focus on stock investments through bills financing. And if the regulator tightens the funding channel of bills financing, that could impact liquidity in the stock market," said Xu Yen, an analyst at Shenyin & Wanguo Securities.
