The dollar fell to another record low against the euro on Monday, hit by fresh fears of a global spill-over from the U.S. mortgage market crisis that buoyed safe-haven bonds and forced Asian stocks into a retreat.
The weaker dollar hit Asian exporters such as Canon Inc., with overall market sentiment also soured by losses on Wall Street and caution after China raised interest rates on Friday in another attempt to prevent the buoyant economy from overheating.
Oil prices fell from near-record highs after oil producer group OPEC expressed concern about the impact of high oil prices on the global economy, which traders saw as a sign it might decide to pump more oil. Gold held on to Friday's gains, benefiting from the weak dollar and heightened market uncertainty.
Tokyo's Nikkei slumped 1.3 percent by the midsession, hitting a month low, led lower by exporters such as Canon Inc. (7751.T: Quote, Profile, Research), which fell 1.5 percent.
Japan's top construction machinery maker Komatsu fell almost 1.8 percent, losing ground after disappointing results from industry leader Caterpillar Inc.
Norihiro Fujito, general manager of Mitsubishi UFJ Securities' investment research and information division, said the selling largely reflected investors' concerns about the U.S. market outlook.
MSCI's measure of Asia Pacific stocks excluding Japan was just 0.1 percent below Friday's record high.
The U.S. market could turn more volatile on weakness in financial stocks due to subprime mortgage problems, he said.
Caterpillar's disappointing earnings on Friday sapped Wall Street optimism about corporate earnings and brought subprime market fears to the fore again, knocking more than 1 percent off the blue-chip Dow and the Nasdaq Composite Index.
Friday's interest rate rise in China also weighed on firms reliant on the Chinese market, such as South Korea's steel maker POSCO, by fanning concerns the tightening may eventually dampen demand from Asia's top export market.
Losses suffered by POSCO and market heavyweight Samsung Electronics pushed Seoul's main KOSPI index off its all-time high, though gains by leading banks such as Kookmin Bank helped limit the decline to 0.1 percent.
Australia's market was down 0.8 percent and Singapore was 0.5 percent weaker, but Hong Kong pared early losses to trade 0.1 percent higher and Taiwan was up 0.5 percent.
Japanese government bonds took their cue from the U.S. market and hit a six-week high, tracking gains in Treasuries after investors dumped stocks and flocked to the safety of government bonds.
Concerns that losses in the U.S. market for subprime mortgages that aim at clients with poor credit histories may harm consumers and sap growth in the world's biggest economy is sending ripples through world markets, pushing the dollar lower.
The U.S. currency hit another all-time low against the euro of around $1.3845 in early Asian trading on Monday.
The euro stood at $1.3833 at 0235 GMT.
The dollar also hit a six-week low against the yen at 120.80 yen on the electronic trading platform EBS. Some traders attributing the yen's rise to the unwinding of carry trades, where investors borrow in low-yielding currencies such as yen to invest in riskier, but higher-yielding assets.
Oil prices came off last week's levels near all-time peaks after the president of the Organization of the Petroleum Exporting Countries told Reuters on Sunday the group was aware high oil prices could hurt global growth.
U.S. crude for September delivery traded 31 cents lower at $75.48, but analysts said OPEC's comments were unlikely to have a lasting impact given persistent worries whether supply can keep up with demand from rapidly growing economies such as China.
Gold, a save-haven investment at times of financial markets distress, which tends benefit from dollar weakness and high energy prices, traded steady near a 10-week high of $686.00 an ounce set on Friday.