Exporters were also under pressure with investors fretting that a weak dollar would weigh on offshore earnings. The dollar touched a record low against the euro and a fresh two and a half week low against the yen on views that the Fed will have to cut rates again soon.
Tokyo's Nikkei 225 average closed 1.7 percent
to end at its lowest in three weeks as exporters such as TDK and Sony took a beating while bank shares dropped on worries over fallout from the global credit squeeze. Shares in drug maker Kyowa Hakko Kogyo surged more than 16 percent as sources close to the matter said beer maker Kirin Holdings is in talks to take a majority stake in it in a deal that could top 300 billion yen (US$2.61 billion).
South Korea's KOSPI shed 1.75 percent to its lowest close in three weeks as concerns about global credit conditions hit financial firms such as Shinhan, following a string of disappointing earnings from U.S. banks this week.
Australia's S&P/ASX 200 Index finished 0.9 percent lower, led down by financial firms such as Commonwealth Bank and Macquarie Bank.
Singapore's Straits Times Index dropped closed 1.6 percent lower with blue chips and banking issues sliding. OCBC, UOB and DBS Group led the decliners.
Chinese stocks rebounded slightly to close 0.1 percent down. Property shares were positive after Beijing denied reports that it was studying a proposal to permit swaps of shares listed in both the domestic stock market and Hong Kong. The denial was good news for the market because a swap scheme could drag down the prices of domestic shares by shrinking the big premiums, now averaging nearly 50 percent, of A shares over Hong Kong-listed H shares. But Friday's market rise was small and turnover was very thin, showing many investors remained worried about government policy and thought the market was vulnerable to a pull-back for a range of reasons.
Markets in Hong Kong were closed for a holiday. They will reopen on Monday, 22 October.