Asian stocks fell on Friday, extending the worst monthly performance since the most volatile days of the global financial crisis in October 2008, with Chinese shares racking up sharp losses.
The euro fell and was on course for the biggest monthly drop in nearly a year, with parliamentary approvals of new powers for Europe's bailout fund having little lasting impact.
Fears of a spiraling European debt crisis and a slowing global economy that would hit Asian exports caused investors to slash their bets on risky assets in the September quarter.
Markets in Asia, considered by investors to have superior fundamentals compared with developed markets in the West, were not immune, with institutional investors continuing to hedge against further Asian currency weakness, including the yuan.
Mainland Chinese stocks listed in Hong Kong fell 3.3 percent, underperforming the rest of the region, with investors selling off bank shares.
Even a rare batch of strong U.S. economic data led by falling jobless claims failed to cheer up Asia, with traders focusing on China's September PMI data to gauge how the world's export powerhouse is holding up in the face of a slowing global economy.
Official Chinese data to be released on Saturday may show a pickup in factory activity though input prices will be closely watched for inflationary pressures at a time when officials have declared that fighting inflation was a top objective.
In Asia, stocks in Japan, Australia and Korea were steady to slightly lower with only Hong Kong shares among the major losers, dropping about 1.8 percent, as investors locked in profits.
While window-dressing by fund managers buying some of the quarter's outperforming issues to improve their books has helped support shares this week, gains may be hard to get in the future as broader macro concerns still remain.
Window-dressing tends to support the market at the end of quarter, and some relief about Europe's situation after the German vote is also giving buyers more confidence, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co.
MSCI's index of Asia Pacific shares outside Japan fell 1.3 percent after rising for three consecutive days. For the month, it is down more than 13 percent, its biggest monthly drop since October 2008.
U.S. stock futures were down 0.6 percent after ringing up decent gains on Thursday.
In what has been another tough month for money managers with market movements largely dictated by the ebb and flow of headlines from Europe, emerging market bonds have suffered the most as investors cut positions to protect portfolios.
EPFR Global data shows emerging market bond fund outflows gathered pace in the week to September 28. A total of $3.2 billion of net outflows was recorded from emerging market bond funds, compared with the previous week's outflow of $692 million.
Hard currency bond funds saw $1 billion of outflows while local currency bond funds saw $1.6 billion in withdrawals.
In Asia, some of the biggest jump in bond yields have been in markets where foreign positioning has been the most crowded like Indonesia and Malaysia while the bustling international pipeline for bond issuers in Asia has come to a grinding halt.
Currencies have also been hard hit.
As the flight to safety pushed the dollar higher against other currencies, investors such as long-only funds and banks who bought these bonds on an unhedged basis, betting on more FX gains ran to hedge positions, further exacerbating their drops.
Even a recent drive by Chinese authorities to fix the yuan's midpoint higher has failed to impress markets.
The renminbi is trading at the bottom end of a trading end against the dollar and the offshore yuan is trading at a rare steep discount against the onshore rate.
Elsewhere, the euro hovered above a eight-month low versus the dollar after German Chancellor Angela Merkel's coalition party voted on Thursday to enhance the European Financial Stability Facility's powers.
Having worked through to $1.3679 at one stage, the single currency settled back at $1.3554 with investors worried about the many problems ahead for the euro zone.
There is still a lot of uncertainty... Economic growth in Europe and the U.S. is not that good and that will put pressure on the euro and give a bid to the dollar, said Joseph Capurso, strategist at Commonwealth Bank of Australia.
Worried investors gave the thumbs up to safe-haven bets like gold and Treasuries with the former extending gains by a percent to hold $1,632 per ounce.
U.S. crude futures rose above $82.5 per barrel in electronic trade on Friday, extending Thursday's gains.