Major Asian markets were lower across the board Friday, with bank stocks hit especially hard, as more bad news out of the U.S. financial sector exacerbated worries about banks.
In the U.S., Citigroup agreed to buy back $7.3 billion of illiquid securities, while insurance giant American International Group reported a big quarterly loss after the market closed on Wednesday.
Japan's Nikkei stock average fell 0.4 percent on Friday, with banks such as Mitsubishi UFJ Financial Group suffering sharp declines due to the bleak outlook for the domestic economy.
But Toyota Motor rose 4.4 percent as the world's biggest automaker kept its forecasts unchanged despite posting a 28 percent drop in quarterly net profit on a strong yen and slumping U.S. sales.
Tokyo cut its view on the economy on Thursday, dropping the word "recovery" in a key monthly report for the first time in nearly five years as raw material costs and a global slowdown push the world's No.2 economy towards a recession.
"As the government report said, the Japanese economy has been deteriorating, and in such an environment investors cannot buy domestic demand-oriented stocks and banks," said Kenichi Hirano, operating officer at Tachibana Securities.
The benchmark Nikkei stock average was down 49.75 points at 13,075.24, while the broader Topix lost 0.9 percent to 1,248.08.
Australian shares fell 0.8 percent, led down by the big banks as concerns about further financial sector losses percolated through the market following another sell-off on Wall Street.
"We're following the Dow, there's no doubt about that," said Stuart Smith, a private client advisor at Bell Potter Securities.
He said a pullback by bank stocks was not a surprise as the sector had rebounded solidly in recent days following sharp falls last month after National Australia Bank and Australia & New Zealand Banking Group revealed big losses due to the credit crunch.
Westpac Banking, in a market update on Friday distanced itself from NAB and ANZ's problems by saying its asset quality remained good.
"I could't see anything wrong with what they said," said Smith.
The benchmark S&P/ASX 200 index fell 40.3 points to 4.943.0, after gaining 3.4 percent over the previous two sessions.
In Seoul, the benchmark Kospi index was down 16.17 points, or 1.03 percent, at 1547.83.