Meanwhile, investors are looking ahead to key monetary policy decisions by the European Central Bank and the Bank of England. Analysts widely expect no action from the ECB, but recent weak data on euro zone services sector activity suggest further monetary easing could still be on the table.
Japan's stock index came close to approaching bear market territory in afternoon trade. If the Nikkei fell below 12,700, that would mark a 20 percent loss from it's five-and-a-half year peak of 15,942 on May 22, which would then officially deem the index in a bear market.
"What we're seeing on the Nikkei is a correction, but it's definitely a severe correction," said Kelly Teoh, market strategist at trading firm IG. "But I don't think we will get to a 20 percent fall and the Nikkei is likely to bounce – overall sentiment is still bullish."
(Read More: Yen and Nikkei Traders – Who's Following Who?)
Electric power stocks extended losses with Tokyo Electric Power losing 9 percent after Wednesday's 16 percent fall. Chemical-related stocks were also market laggards with Showa Denko and Mitsubishi Chemical down 6 percent each.
Tech exporters recovered some of the previous day's losses as investors engaged in bottom-feeding. Tokyo Electron rose 4 percent despite the yen's strength against the dollar; dollar-yen is currently holding above the 99 handle.
Australia Falls 1%
Sydney's benchmark index touched a a four-and-a-half month low at 4,778, as resource stocks continued to drag down sentiment. Newcrest Mining was eased 7 percent due to lower gold prices while oil producer Energy World fell 6 percent.
The Australian dollar hit a new one-and-a-half-year low at $.09432 after Australia's April trade surplus came in at a lower-than-expected $27 million, well off market expectations for $204 million.
Shares of Qantas Airways rose as much as 1 percent after it announced that Hong Kong conglomerate Shun Tak would join it and China Eastern Airlines in taking a 33.3 percent share in Jetstar Hong Kong.
If the benchmark drops below its 200-day moving average of 4,737, fears of an extended downwards spiral may arise.
The Shanghai Composite tracked global market weakness to close down 1 percent, falling to its lowest levels in three weeks.
(Read More: Data is Superficial, China Is Fine: Roach)
Wine producers were in focus after China decided on Wednesday to launch an investigation into European wine imports, in retaliation against duties on Chinese solar panel imports
Gansu Mogao tumbled over 5 percent, while Citic Guaon Wine lost 4 percent.
— By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC