Asian stocks fell to near five-month lows on Friday as investors dumped riskier assets after rising sovereign debt problems in the euro zone and poor jobs data sent U.S. and European stocks tumbling.
The U.S. dollar extended gains from the previous session as investor anxiety about sovereign debt in Greece, Portugal and Spain sparked a sell-off in the euro and growth-linked currencies such as the Australian dollar.
But the euro rebounded slightly on Friday against the Swiss franc on rumors that the Swiss central bank had intervened to weaken its own currency. Overnight, the euro had hit its lowest level in more than eight months against the dollar and plunged to a 15-month low against the Swiss franc.
Asian stock markets and commodity prices recoiled on fears that growing euro zone troubles could impede or even derail the global economic recovery.
An unexpected rise in U.S. unemployment claims heightened those concerns ahead of non-farm payrolls data due later on Friday, a number that will be closely watched by markets for signs of an improvement in America's jobless rate.
Japan's Nikkei average <.N225> dropped more than 3 percent to its lowest in seven weeks, with exporters hurt by a stronger yen as well as the escalating problems in Europe. The yen, like the dollar, has firmed as investors move into assets traditionally seen as safe havens in times of market turmoil.
Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong, said worse may lay ahead for Asian stocks in the second quarter.
He said the waning impact of fiscal stimulus measures in big economies would trigger a double-dip recession in the United States, Europe and Japan by the end of the year, and that markets would see it coming.
When it comes to equities, markets usually anticipate changes in the direction of the global economy about two quarters before they occur, Kowalczyk said.
Obviously when you look at what's happening with the market this year, some might say the correction has already begun. But I think this correction, while it is painful, is not the major one that will come ahead of the double dip.
Asia Pacific stocks outside Japan as measured by MSCI <.MIAPJ0000PUS> fell more than 3 percent to levels last seen in early September. Declines were led by resource stocks, which fell 4 percent as commodity and energy prices fell on worries about the strength of the global recovery.
Asian stocks outside Japan have fallen close to 9 percent this year after rising 68 percent in 2009 on the back of government measures worldwide that stimulated spending and dragged the global economy back from the abyss.
Australian shares fell 2.8 percent. Top miners Rio Tinto Ltd slumped 5.6 percent and BHP Billiton Ltd lost 3.9 percent. Both were especially hard hit by a slump in commodities prices as the U.S. dollar jumped. In Hong Kong, the benchmark Hang Seng Index <.HSI> was down 3 percent.
The euro jumped to the day's high of 1.4905 francs on EBS after falling as far as 1.4551 francs, its lowest since October 2008, and later held around 1.4730 francs, up 0.6 percent on the day.
Traders said it was not clear if the Swiss central bank had actually intervened to buy euros and sell the Swiss franc, although there was talk it had used trading platform EBS.
The Swiss National Bank has pledged to stem a sharp-run up in the franc against the euro because its fears a stronger franc will erode the country's export competitiveness threaten its broader recovery.
The euro had dropped to levels which could prompt intervention and the market was wary of the possibility.
The weakness in the euro was partly attributed to widening Greek, Portuguese and Spanish bonds' yield spreads over German benchmarks.
In Asian trade, the dollar index <.DXY> surged past 80 for the first time since mid-July 2009 while the euro fell to as low as $1.3710, which was its lowest since May 2009.
Major U.S. stock indexes fell as much as 3 percent overnight, their worst losses in more than nine months, with the Dow <.DJX> briefly dipping below the significant 10,000 mark. <.N>
Financial, commodity and materials sectors were all hit hard by fears of escalating government debt problems in Greece, Portugal and Spain.
I think it's a confidence issue right now. We definitely do need to see unemployment in the U.S. start to decline before consumption can really start to pick up, said Lorraine Tan, director of Asia equity research at S&P in Singapore.
Shanghai copper was seen falling around 3 percent after a plunge in London sent the metal to it lowest in more than three months.
Oil rose 27 cents to $73.41 per barrel, after its biggest one-day drop since July in the previous session as the dollar jumped.
(Editing by Kim Coghill)