"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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U.S. risk assets declined across the board in reaction, with the Dow tumbling over 200 points while the yield on the 10-year benchmark Treasury hit a 15-month high.
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.
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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%