Japan's Nikkei average struck a 26-year low on Monday and other Asian markets slipped on worries about the fate of General Motors and U.S. banks, while the yen edged up in a slight reversal of its broad slide.
The drop in stocks, led by automakers and financials, sparked gains in the yen and government bonds. Oil prices jumped for a second day on expectations of more OPEC supply cuts.
Japan's broad TOPIX index touched a 25-year intraday low as the country's shares fare the worst among Asian markets, while the Shanghai Composite index slid as investors locked in profits on blue-chip companies after a rally this year of nearly 20 percent.
In contrast, European indexes were set to rise at the start of trade, financial bookmakers said.
Asian stock markets have held up better than others in the United States and Europe on expectations that households and governments in the region have more scope to keep spending because they are less indebted.
Hopes that China will do everything it can to keep the economy chugging at an 8 percent annual growth rate have also underpinned Asian stocks.
We still believe underlying fundamentals in Chinese companies are much much stronger than the OECD countries, said Winson Fong, who manages $2 billion at SG Asset Management in Hong Kong.
But some analysts were less convinced. Clive McDonnell, Asia strategist at BNP Paribas in Hong Kong, said that Asian equity markets were unlikely to outperform in an environment where the collapse in exports is showing few signs of abating.
Figures on Monday showed Japan suffered its biggest current account deficit on record in January on plunging shipments abroad.
The MSCI index of Asia-Pacific stocks outside Japan dipped 0.2 percent following a slight rise in the U.S. S&P 500 on Friday despite dismal data showing U.S. unemployment surging to a 25-year high in February.
Stocks slumped globally last week on renewed concerns about the impact of the crisis in the United States as the government stepped in with another lifeline for insurer AIG and GM's auditors raised doubts about its ability to avoid bankruptcy.
Seoul's KOSPI index bucked the trend and climbed 1.6 percent. But a 13 percent slide in shares of HSBC before an expected rights issue this week dragged Hong Kong's Hang Seng down 2.7 percent.
Foreign investors have been persistent sellers of Asian stocks, one of the factors knocking regional currencies lower.
Fund tracker EPFR Global said that Asia ex-Japan equity funds saw the biggest outflows among emerging market regions in the week ending last Wednesday, seeing $1.09 billion yanked out -- the most in 20 weeks.
Overall $10.4 billion was pulled out of global stock funds followed by EPFR Global.
Until equities stabilize globally, it is hard to see an end to portfolio outflows from Asia, said Societe Generale's FX sales desk in a note to clients.
DOLLAR STEADY, JGBS DROP
The dollar was little changed after pulling back from three-year peak last week reached mainly on the back of safe-haven buying and as U.S. investors have kept selling their holdings of foreign assets to repatriate funds.
The dollar index, a gauge of its performance against six major currencies, edged up 0.1 percent to 88.624 after climbing as high as 89.624 last week.
The U.S. dollar index retreated just short of the 90 line, which coincides with a 38.2 percent Fibonacci retracement of its long slide between 2001 and 2008 that serves as a major point of chart resistance.
The euro dropped 0.2 percent to $1.2636 as the single currency shed 0.4 percent to 124.10 yen. The dollar dipped 0.1 percent to 98.25 yen.
Oil prices gained 83 cents to $46.35 a barrel, gaining nearly 7 percent in the past two trading sessions on expectations OPEC will cut supplies further. But gold dipped $4.25 an ounce to $935.40.
In government bonds, the stock market losses did little to help. The benchmark 10-year Japanese yield edged up a basis point to 1.300 percent, and JGB futures hit a one-month low.
U.S. Treasuries posted slight gains before a week of hefty auctions. The 10-year note rose 1/32 in price to yield 2.870 percent, little changed from late New York trade on Friday.
(Additional reporting by Parvathy Ullatil in Hong Kong)