|Stocks tumbled sharply on Thursday creating a panic among investors in Asia [Reuters]
Asian stock markets have caught a global selling fever after new warnings of world recession coupled with fears that rapid-fire growth in China is set to slow down.
Investors in Tokyo, Seoul and Sydney picked up on the mounting anxiety evident in the United States and Europe, where fresh carnage ripped across the markets on Friday.
"The bears returned aggressively overnight as very disappointing US economic data and fears over the stability of European banks had traders reaching for the sell button," Ben Potter, a IG Markets analyst, said in Australia.
"It looks like we're set for a very ugly end to the week as fear and panic-driven trade once again dominate the market," he said.
"We could have the added pressure of traders looking to close their positions ahead of the weekend given the high levels of uncertainty."
Japan's Nikkei index ended the morning session down 2.15 percent on Friday. The headline index at the Tokyo Stock Exchange lost 192.09 points to 8,751.67 by the lunch break.
Australia's benchmark S&P/ASX 200 was down 2.55 per cent at 4,142.60. Hong Kong dived 2.71 per cent to 19,473.38 while Singapore's headline share index fell 2.55 per cent to 2,752.94 in opening trades.
In Seoul, the benchmark KOSPI was down a hefty 3.87 percent at 1,788.59 with South Korean exporters such as Samsung Electronics and Hyundai Motor hit hard.
The worldwide selloff came after Wall Street investment bank Morgan Stanley warned that the US and eurozone economies were "dangerously close" to a double-dip recession.
Stocks were further punished by a fresh round of gloomy economic data from the United States such as jobless claims, and growing doubts about the ability of European banks to withstand the 17-nation eurozone's debt crisis.
The Dow Jones Industrial Average was down 3.7 per cent at the closing bell, while the broader S&P 500 slumped 4.5 per cent and the tech-heavy Nasdaq Composite plummeted 5.2 per cent.
Losses were even worse in Europe on Thursday, as London stocks closed down 4.5 per cent, Paris fell 5.5 per cent and Frankfurt dropped 5.8 per cent.
Oil prices slumped as traders fretted that an economic downturn could erode global energy demand. Early in Asia, West Texas Intermediate crude for delivery in September was down $1.05 from its New York close at $81.33 a barrel.
Gold and US Treasury bonds - both safe havens in times of trouble - broke record ground with bullion reaching $1,837.50 per ounce on the Hong Kong spot market from a previous high of $1,826.10 in New York.
A report in The Wall Street Journal that the US Federal Reserve was worried about the liquidity of major European banks contributed to the selloffs in European markets.
French lenders came under especially intense pressure, with Societe Generale losing more than 12 per cent.
"The concern is that the escalating European sovereign debt crisis - which is now engulfing larger countries -- and the potential fallout for the banking sector and financial markets, could provide a killer blow," said Nick Kounis, an economist at ABN Amro in Europe.
The tumult played out on the currency markets with the euro at $1.4321 and 109.75 Japanese yen, from $1.4337 and 109.70 yen late in New York.
The yen was at 76.64 to the dollar in early Japanese trade, from 76.52 overnight in New York.
"Concerns about a slowdown in the US and global economies, the European debt problems and the stronger yen are all going to weigh on the market," Hiroichi Nishi, general manager at Tokyo's SMBC Nikko Securities, told Dow Jones Newswires.
The concerns are not confined to the developed world. At Deutsche Bank, economists focused on the impact of slower Chinese growth on the rest of the world.
They foresaw a "soft landing" for China this year and next, but concluded that "global stock markets will likely be negatively impacted by a Chinese slowdown".
They said the world's second-biggest economy would grow 8.9 per cent this year, down from 10.3 per cent in 2010, and by 8.3 per cent in 2012, "mostly due to the effect of monetary tightening".