Asian equities got hammered on Thursday after the Federal Reserve signaled an end to its bond-buying program later this year while shrinking factory activity in China further added to market gloom.
Japan's Nikkei index closed down 1.7 percent after dipping below the 13,000 mark. Amid the worst hit, Australia's benchmark tumbled over 2 percent, while South Korea's Kospi and the Shanghai Composite traded at 2013 lows.
"I think everyone is looking at everyone else in the market and trying to figure out if there is going to be panic. And if you want to panic you want to do it early, which is why we've seen volatility," said Richard Jerram, chief economist at Bank of Singapore.
The FTSE CNBC Asia 100 index, which tracks the performance of the region's 100 largest companies, slumped 3.5 percent to a new 2013 low.
Key Risk Factors
China's HSBC Flash Purchasing Manager's Index (PMI), a preliminary reading of manufacturing activity, fell to a 9-month low in June. The 48.3 figure was worse than May's reading of 49.2, when the index moved into contractionary territory for the first time in seven months.
"This is proof that there is a deceleration in the Chinese economy. The second quarter is going to come in below the first quarter and there's no end in sight – because we haven't seen a clear signal that policymakers are stepping up to support the economy," said Frederic Neumann, managing director and co-head of Asian Economics Research at HSBC.
Meanwhile, the Fed concluded a two-day meeting on Wednesday and said that it would keep buying $85 billion worth of bonds a month to support the economy. But at the Fed's press conference, Chairman Ben Bernanke said that if the U.S. economy recovers, the pace of asset purchases could slow towards the end of 2013 and stop altogether by the middle of 2014.
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Shanghai Down 2.7%
Chinese financials extended losses after inter-bank funding costs surged on Thursday, leading the benchmark index to close at its lowest levels since December.
The seven-day repo rate, which is seen as gauge of confidence to lend in the interbank market, rose to a record high above 10 percent. China's overnight repo rate surged 598 basis points to 13.85 percent, Reuters reported.
Pudong Development Bank lost over 5 percent, Minsheng Bank tumbled 4.7 percent, and Industrial Bank fell 3.7 percent.
The central bank continued to ignore pressure to ease liquidity conditions as the cabinet reaffirmed its commitment to prudent monetary policy on Wednesday.
Sydney Drops 2.1%
Australia's benchmark index extended its fall after the release of HSBC's Chinese manufacturing survey. The weak data directly hurts domestic exporters like miners as China is Sydney's largest trading partner.
Mining equipment provider Emeco Holdings tanked 20 percent, while gold miners Perseus Mining fell 14 percent and Gindalbie Metals lost 11.5 percent.
The Australian dollar dived to a 33-month low against the greenback at $0.9237 but the weaker currency was unable to boost stocks with overseas exposure.
Nikkei Falls 1.7%
Japan's benchmark index was knocked off the previous day's one-week high thanks to a sharp decline in exporters. Construction manufacturer Kubota and automaker Suzuki Motor tanked over 6 percent, while camera maker Nikon fell 5.8 percent.
Real-estate stocks also took a beating with Tokyo Tatemono easing 6 percent, Sumitomo Realty & Development down 5 percent and Mitsui Fudosan lower by 3.8 percent.
Even a weak yen was unable to contain losses. The currency traded at the 96.8 handle against the greenback, near a one-week low.
Kospi Slips 2%
Seoul's benchmark index fell to its lowest levels since November, weighed down by shares of major exporters such as techs and chemicals.
— By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC