The euro tumbled to a one-year low against the dollar and Asian stocks fell as cuts in Greece and Portugal's credit ratings set off a flight to safety on fears that the euro zone's debt problems are spreading.
Oil fell below $82 and metals prices were hit after ratings agency Standard & Poor's slashed the sovereign ratings of Greece to junk status and downgraded Portugal.
Gold edged back from a 2010 high hit on Tuesday.
Standard & Poor's said it was concerned about Greece's ability to implement the reforms needed to address its high debt burden and Portugal's ability to deal with its debt load given its weak economic outlook.
Investors said the credit woes could spread and drag on Europe's economy but the chances of global contagion were low given the economic strength elsewhere in the world.
Sentiment, though, took a hit. The IMF had warned in its World Economic Outlook report last week that the world risked a debt explosion if public finances weren't reined in.
We do not think European debt issues will spread to other countries, but briefly, foreign investors who had played a big part in lifting the market may not actively buy, said Hwang Keum-dan, a market analyst at Samsung Securities in Seoul.
Hwang and others said stock markets had been poised for a correction anyhow, after strong gains over the last few weeks. The MSCI ex-Japan index, for example, had risen 14 percent from a February low to Tuesday.
On Wall Street, stocks had the biggest percentage fall in nearly three months following the Greek news. All three major indexes fell about 2 percent.
The CBOE Vix volatility index, Wall Street's barometer of investor fear, jumped about 31 percent.
Of course there's worry about contagion, but it still seems as if it's unlikely to throw cold water on the entire global economic recovery, said Hideyuki Ishiguro, a strategist at Okasan Securities in Tokyo.
The euro hit a one-year low against the dollar, falling as far as $1.3144 on trading platform EBS, after tumbling nearly 2 percent on Tuesday for its biggest one-day percentage loss in about a year.
After hitting the one-year low, it crawled higher, to stand 0.3 percent higher on the day at $1.3199.. It rose 0.5 percent against the yen to 123.04 yen
A reprieve for the euro was seen as likely to be short-lived.
In terms of trading ranges, when taking into account the fact that the euro has hit new lows, a fall to below $1.3000 is very much a possibility, said a trader for a European bank, adding that such a decline could occur in the near term.
Materials and financial shares were battered across the region, pushing the MSCI index of shares outside Japan down 1.5 percent.
Australian shares at one point tumbled 1.8 percent to a six-week low, with banks and miners hit hardest. The benchmark S&P.ASX 200 index lost 1.4 percent.
Japan's benchmark Nikkei lost 2.5 percent, paring losses that at one point took it down about 3 percent, with exporters suffering after gaining earlier this week. Honda Motor Co lost 1.8 percent.
The biggest factor behind today's fall is worries that credit problems could spread to other parts of Europe, said Masayoshi Yano, a senior market analyst at Meiwa Securities.
Investors now fear that credit woes started in Greece could slow down the whole European economy.
Supported by safe-haven bids, the yield on the benchmark 10-year Japanese government bond fell to a four-month low and JGB futures climbed to a seven-week high.
Crude oil fell under $82, pressured by statistics showing a surge in U.S. crude stockpiles. But NYMEX crude for June delivery later pared losses to stand down 12 cents at $82.32/
The contract fell nearly $2 on Tuesday as the Greek and Portuguese ratings downgrades prompted market players to pull cash out of energy markets.
London copper and aluminum futures fell at the opening but later recovered slightly.
Gold edged down on Wednesday after surging to a 2010 high the previous day, with spot gold at $1,165 by 10:27 a.m. ET
(Additional reporting by Jungyoun Park in SEOUL and Rika Otsuka and Masayuki Kitano in TOKYO; Editing by Neil Fullick)