Worries about Europe's debt crisis, signs of weak global growth and expectations of lower U.S. corporate earnings sent Asian stocks down on Wednesday.
Japan's Nikkei 225 index tumbled 1.7 percent to 8,625.26. Hong Kong's Hang Seng index fell 0.4 percent to 20,850.25. South Korea's Kospi lost 1 percent at 1,958.41. Australia's S&P/ASX 200 shed 0.4 per cent to 4,488.30.
International Monetary Fund said Tuesday that Spain's economy — already in double-dip recession — will contract by 1.3 percent next year — more than double its previous prediction.
Spain, with near 25 percent unemployment, has introduced a series of austerity and labor measures in a desperate bid to bring down its deficit and convince investors it can manage its finances without outside help.
Madrid is now pushing for the European Central Bank to intervene in the secondary market and bring down its borrowing costs, but the ECB insists the country must formally apply for aid first.
"Spain remains the major focal point and in this regard there is no progress in the country moving forward with a bailout request," analysts at Credit Agricole CIB in Hong Kong said in a market commentary. "The market tone will continue to remain cautious but we don't expect a major relapse in risk appetite."
The IMF also cut its estimates for global economic growth, warning that mature economies are at risk of recession.
Investors on Wall Street were discouraged by the IMF report as well as expectations of lower corporate earnings. Analysts expect earnings for Standard & Poor's 500 companies to be lower than a year ago — the first time that has happened in almost three years.
The Dow Jones industrial average fell 0.8 percent to 13,473.53. The Standard & Poor's 500 index fell 1 percent to 1,441.48. The Nasdaq composite index fell 1.5 percent to 3,065.02.
Benchmark oil fell 31 cents to $92.08 per barrel in electronic trading on the New York Mercantile Exchange.
The price of oil rose more than 3 percent Tuesday on concerns about supplies from the Middle East and the North Sea. The contract rose $3.06 to finish at $92.39 per barrel.
In currencies, the euro fell to $1.2861 from $1.2880 late Tuesday in New York. The dollar rose to 78.25 yen from 78.22 yen.