The US Federal Reserve’s light-touch stimulus on Wednesday also weighed on share prices with concerns it will not be enough to boost the stuttering economy.
Tokyo fell 0.29%, or 25.72 points, to 8,798.35, Seoul tumbled 2.22%, or 41.75 points, to 1,847.40 while Sydney fell 0.96%, or 39.4 points, to 4,048.2.
Hong Kong dived 1.08% in the afternoon.
Fears of a slowdown in the global economy were stoked by figures from HSBC yesterday showing manufacturing activity in the world’s number two economy at its lowest level in seven months in June.
The preliminary June purchasing managers index (PMI) figure marked the eighth consecutive month that manufacturing has contracted.
And eurozone private sector activity sank to the lowest level for three years in the second quarter, a survey showed on Thursday.
The PMI compiled by business research firm Markit was stuck at 46 points in June, the same level as May, indicating another month of contraction in activity.
Adding to the gloom was Moody’s decision to cut the credit ratings of 15 of the biggest names in banking, including Goldman Sachs, Barclays, Citigroup, HSBC and Deutsche Bank.
Moody’s said the banks were exposed to the roiling financial crisis and to each other.
Four firms were downgraded by one notch, 10 firms by two notches and one by three notches.
The Fed said on Wednesday that it would extend Operation Twist – selling short-term debt to buy longer term Treasuries – for another six months and was “prepared to take further action” if needed.
But the move left traders who had hoped for a third round of monetary stimulus – or quantitative easing – unimpressed.
The Fed, after a two-day meeting, also predicted US growth would be even worse than thought this year, forecasting 2012 growth of between 1.9% and 2.4% – a half point cut from predictions made as recently as April.
Chairman Ben Bernanke also pointed to slower progress in reducing unemployment and to spillovers from Europe’s economic crisis.
“Signs of a global slowdown are likely to weigh on overall market sentiment,” Yutaka Miura, Mizuho Securities senior technical analyst, told Dow Jones Newswires.
The Dow ended 1.96% lower, the S&P 500 dived 2.23% and the Nasdaq dropped 2.44%.
And in Spain the central bank said new stress tests showed the country’s banks need between 16 and 62 billion euros in extra capital to stabilise them, in line with market expectations of a shortfall of 60-70 billion euros.
The figure is well within the 100 billion euros rescue cash the European Commission, the European Central Bank and the International Monetary Fund had earmarked for Madrid to help its troubled lenders.
Earlier yesterday, Spain showed it could still tap the bond market at a pivotal time by easily raising 2.22 billion euros in a mixture of two, three and five-year bonds. But it had to pay soaring rates to lure investors.
On currency markets the dollar stood at 80.44 yen, down from 80.26 yen late yesterday in New York.
The euro bought US$1.2560, up from US$1.2543 in New York but well off the levels around US$1.2680 in Asia yesterday.
It also bought 101.03 yen, compared with 100.68 yen in New York.
Oil was up in early Asian trade after suffering heavy losses in the United States.
New York’s main contract, light sweet crude for delivery in August, gained 33 US cents to US$78.53 a barrel in the afternoon, up from US$78.20 in New York, its lowest level since the beginning of October.
Brent North Sea crude for August delivery advanced 65 US cents to US$89.88 after tumbling to US$89.23 in late yesterday trade, dipping below the US$90 line for the first time since December 2010.
Gold was at US$1,562.90 an ounce at 0600 GMT, compared with US$1,586.50 late yesterday.
In other markets:
- Taipei closed 0.78%, or 57.00 points, lower at 7,222.05. Smartphone maker HTC rose 0.59% to Tw$86.6 while Taiwan Semiconductor Manufacturing Company was 0.62% lower at Tw$80.1.
- Wellington fell 0.30%, or 10.19 points, to 3,399.20. Fletcher Building was off 0.66% at NZ$5.99, Telecom gained 1.44% to NZ$2.46 and Chorus added 0.33% to NZ$3.02.