With stocks sliding across the board, big Japanese banks were particularly hard hit on speculation that they would fail to meet interim profit forecasts.
Among the main losers was Japan's largest bank, Mitsubishi UFJ, which shed 8.83 per cent, and Sumitomo Mitsui, which plunged 8.01 per cent.
The slump follows a report in Japan's Nikkei financial daily that Mitsubishi UFJ would fall well below its net profit projection for the April-September period due to higher bad loan costs and the falling value of its shareholdings.
Other losers included some of Japan's biggest consumer manufacturers, with Sony Corp. plunging 9.26 per cent, Canon Inc. down 6.07 per cent, and Panasonic Corp. sliding 8.44 per cent.
Automotive giant Toyota saw its stock slide 6.86 per cent amid news reports that its parent company will post its first decline in annual global sales in a decade.
Elsewhere in Asia investors were equally pessimistic.
In India fears of a global recession saw stocks in Mumbai open the trading day down 3.79 per cent.
Stocks in South Korea were also hard hit, with Seoul's Kospi index ending the day down 5.1 per cent after earlier plunging as low as 8.4 per cent.
In New York on Tuesday, the Dow Jones industrial average fell 2.5 per cent, while other broader indices also declined.
Analysts say that while credit markets have shown some signs of improvement, investors are focusing on the bleak outlook for the US economy and American corporate earnings.
The latest concerns emerged on Tuesday as a string of so-called "bellwether" corporations downplayed their prospects for the coming months.
Corporations such as chemical manufacturer DuPont Co., Sun Microsystems and Caterpillar Inc. – seen as key barometers of the health of the US economy – all issued gloomy earnings reports.
"The credit crunch seems to be behind us, and we are shifting focus to corporate earnings and economic conditions, and clearly both are deteriorating," Alex Tang, head of research at Core Pacific-Yamaichi in Hong Kong told the Associated Press.