Tokyo shares fell 1.68 percent to their lowest level in nearly five months Tuesday, although early losses narrowed ahead of a US Federal Reserve policy board meeting later in the global day.
South Korean shares closed 3.64 percent lower, recovering some ground after falling as much as 9.9 percent earlier in the day.
Taipei fell 0.79 percent, or 59.68 points, to 7,493.12, having earlier shed five percent.
However, Sydney staged a massive turnaround after slumping five percent in morning trade. The market closed 1.22 percent, or 4.87 points, up at 4,034.8.
And Shanghai bounced back to be flat after data showed inflation had edged up slightly.
PANIC MERCHANTS
Earlier in the day, fear gripped traders."It's a horrible place to be, dark days are upon us," said IG Markets institutional dealer Chris Weston from Melbourne. "How much further to fall is the question people are asking.
"People are trading on emotions at the moment rather than looking at the rational situation. There's widespread panic."
It was the Japanese benchmark index's lowest close since March 15, days after a massive earthquake and tsunami tore into northeast Japan.
Investors were nervous that the US economy may slide into another recession after a US credit downgrade by Standard & Poor's on Friday sent shockwaves through markets already roiled by Europe's debt crisis.
"There is a sense of a market panic that may be triggering more selling than... necessary," said Yutaka Yoshii, general manager at Mito Securities.
Yoshii however said some investors were eyeing the possibility of a technical rebound depending on what measures the US Federal Reserve announces following its policy board meeting later Tuesday.
UBS chief strategist Shoji Hirakawa said "the key is whether the US Fed will come out with measures, not only to increase liquidity, but to turn around economic conditions."
He said it was possible the US central bank may decide on a third round of monetary easing.
Shares in key markets such as the United States and Japan are "nearing their technical bottoms," he added.
Japan's Finance Minister Yoshihiko Noda said he was watching markets closely and staying in contact with monetary authorities abroad.
He also denied a news report on Tuesday that he intends to resign soon and attempt to succeed unpopular Prime Minister Naoto Kan.
Stocks plunged around the world on Monday.
On Wall Street the Dow Jones Industrial Average fell 5.55 percent -- its biggest one-day drop since late 2008 -- while the broader S&P 500 fell 6.7 percent and the tech-heavy Nasdaq dived 6.9 percent.
The euro bought $1.4236 in Asian afternoon trade Tuesday, up from $1.4179 in New York late Monday. The dollar eased to 77.29 yen from 77.68 yen in New York.
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