Asian shares slid on Monday after U.S. stocks suffered a second day of heavy losses on worries that companies were facing tighter credit conditions, while uncertainty in global equity markets drove up the yen.

Worries that problems in the housing market could spill over into other parts of the U.S. economy -- Asia's main export market -- and that tighter credit would cause takeover activity to slow, saw the S&P 500 index suffer its worst week in nearly five years.

With U.S. markets continuing to fall, the outlook does not look good today, said Choo Hee-yeop, deputy general manager of asset management strategy at Korea Investment and Securities.

MSCI's index of Asia-Pacific stocks excluding Japan fell 0.36 percent, while the Nikkei 225 average fell by over 1 percent to hit its lowest in four months. Key indexes in Hong Kong, Australia and South Korea were all little changed to slightly weaker.

Political uncertainty added to pressure on Japanese shares after Prime Minister Shinzo Abe's government suffered a crushing defeat in Japan's upper house elections on Sunday.

As a result, laws will be harder to enact, threatening policy deadlock that may be negative for the stock market, said Norihiro Fujito, general manager at Mitsubishi UFJ Securities' investment research and information division.

For more stories on the election, see

Despite the election results, the Japanese yen rose to a three-month high against the euro, hurting exporters such as Canon Inc., as the sell-off in global equity and credit markets prompted investors to cut back on risky carry trades.

Abe said he won't step down, so the impact on monetary policy is limited, said Masafumi Yamamoto, a currency economist at Nikko Citigroup. The yen is still very sensitive to the risk reduction story, and stock markets will be key this week.

The dollar rose to 118.35 yen holding above the 3-1/2-month low of 118.02 yen, while the euro slipped as far as 160.64 yen its weakest since late April.

Underlining the market's increased concerns about risk, the Chicago Board of Trade's volatility index, or VIX, closed at its highest level since April 2003, near the trough of the previous bear market.

The flight from risk took its toll on high-yielding currencies like the Australian and New Zealand dollars, typically the counterparty to the yen in carry trades, where investors borrow low-yielding yen to invest in assets with higher returns.

But it was good news for Japanese government bonds, with JGB futures hitting a two-month high at the open, although uncertainty about the likelihood of a rate hike in August eroded the gains.

Investors are staying cool about the situation, with chances of an August rate hike by the BOJ remaining about 50 percent, said Tetsuya Miura, a bond strategist at Shinko Securities.

September 10-year JGB futures climbed to a fresh two-month high of 133.30 in early trade before sliding to 133.15, down 0.10 point on the day.

Oil prices dipped, after U.S. crude rose over $2 on Friday to settle just shy of a record set in July last year, on the back of strong U.S. economic data and worries about a supply crunch in the fourth quarter during peak winter demand.

U.S. crude for September delivery fell 34 cents to $76.68 a barrel.