After government data showed the largest number of Americans lining up for unemployment insurance claims in five weeks, US shares plunged 3.60 percent with investors also gripped by deepening fears over Europe's debt.
Asian markets tumbled in response, with Tokyo ending the morning 2.51 percent lower, while Sydney was one percent off after slumping 2.9 percent to a 10-month low earlier. Seoul tumbled 1.83 percent while Singapore was 2.17 percent off and Taipei dropped 2.59 percent.
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Hong Kong was closed for a public holiday.
"This eurozone saga is turning into a bad horror movie," Phillip Securities economist Joshua Tan told Dow Jones Newswires. "You think the monster is dead but it keeps coming back."
The bearish US data and euro fears prompted fresh concern in Tokyo, with government officials fretting as investors piled into the safe-haven yen.
A strong Japanese currency is a worry for Japan due to its negative impact on the repatriated profits of exporters who are currently driving the country's recovery from its deepest post-war recession.
Japanese Finance Minister Naoto Kan said Friday that the "excessive rise of the yen was not desirable", as the safe-haven currency rapidly strengthened.
"We want to monitor the situation so that the appreciation of the yen will not become excessive," he told a news conference.
Prime Minister Yukio Hatoyama was scheduled to meet Kan later Friday to discuss the current situation, according to local media.
Against the dollar, the Japanese unit hovered around 90.24 yen, sharply higher from 91.39 yen seen in Tokyo Thursday afternoon.
The yen's sharp rise prompted the Bank of Japan to inject one trillion yen (11.11 billion dollars) into the short-term money market to increase liquidity.
A rollercoaster week for the beleaguered euro continued with the currency recovering from four-year lows to fetch 1.2591 dollars in Tokyo trade.
A European economic task force was due to hold its first meeting Friday to beef up economic and budgetary surveillance in member states as global markets continue to doubt Europe's unity in the face of the crisis.
Germany unilaterally banned certain speculative trades in an effort to calm markets only to see volatility spike due to the surprise the move created.
International Monetary Fund head Dominique Strauss-Kahn has said there was no risk of the 16-nation eurozone splintering but warned the crisis could cost Europe its credibility.
"The whole world is watching this... and is losing confidence in Europe," he told television station France 2.
The crisis in Europe is being driven by debt and public deficit levels which have soared way above EU rules as governments increased spending to get their economies through the worst recession in generations.
Markets remain concerned despite a near trillion-dollar package to prevent the troubles of debt-ridden Greece spreading to the rest of Europe.
Bearish US data exacerbated doubts over the strength of its recovery, after the Labor Department said initial jobless claims totalled 471,000 in the week ending May 15, up 5.6 percent from the previous week's revised 446,000.
A bill to enact the most sweeping overhaul of financial industry rules since the Great Depression of the 1930s and curb Wall Street excesses also passed a key hurdle Thursday in the US senate in a victory for President Barack Obama.
Oil was lower, with New York's main contract, light sweet crude for July delivery, dropping 70 cents to 70.10 dollars a barrel. The contract fell to near 10-month lows of 64.24 dollars at point in Thursday trading.
Brent North Sea crude for July delivery was off 70 cents at 71.14 dollars a barrel.
Gold opened at 1,180.00-1,181.00 US dollars an ounce in Hong Kong, sharply down from Thursday's close of 1,191.00-1,192.00 dollars.
