Alfred Goldman, chief market strategist at Wachovia Securities, said the market's late drop reflected investors' ongoing concern over the direction of the economy.
"When confidence is razor-thin, the nervous tension goes way up and, bam, the
sellers take over.''
"It's just an overall malaise about how bad the economic slump is going to be globally," he said.
Tokyo's benchmark Nikkei index closed down 6.36 per cent to end the day at its worst closing level since October 1982.
The index has lost more than 20 per cent since last Monday and nearly 40 per cent in the last month alone.
The broader Topix index of Japanese shares posted an even steeper fall of 7.4 per cent.
In Europe, markets followed the Asian lead, initially plunging but had pulled back most of their losses by the close.
London's FTSE index was down 0.79 per cent, while Frankfurt's DAX was up 0.91 per cent.
However, France's CAC 40 lost 3.96 per cent at 3067.35 points.
Patrick O'Hare at Briefing.com, which provides live market analysis, said: "It is fear that is driving the market and the prevailing fear now is that 2009 earnings estimates will need to be marked down considerably as global economies retrench.
"Another fear the market can't shake is the fear of forced selling by troubled hedge funds."
The closing numbers in Asia capped a volatile day, with the Nikkei at one point on Monday morning trading up three per cent, before plunging once again.
|Measures by Japan's prime minister failed to revive flagging market sentiment (Reuters)
Earlier moves by Taro Aso, the Japanese prime minister, to introduce measures to calm stock markets failed to revive flagging sentiment.
During an emergency meeting of the Japanese cabinet on Monday, Aso called for steps including tighter controls on short-selling and expanding a government fund to recapitalise banks to as much as 10 trillion yen ($106.1bn) from two trillion yen, Kyodo news agency reported.
In a further sign of the impact of the global economic slowdown, Japanese consumer electronics giant Canon said it was lowering its net profit forecast for 2008 by 25 per cent, due to the global slowdown and the strengthening of the yen.
The company said that the sharp recent falls on global markets had "increased concern over the impact to the real economy".
"Additionally, drastic fluctuations in exchange rates between major currencies have led to a heightened sense of uncertainty over the future," it said.
On Monday, a surprise statement from the Group of Seven (G7) leading industrialised nations hinted at further intervention, saying its members would co-operate to aid stability.
But that appeared to do little to immediately boost investor confidence.