Asian stocks fell on Wednesday, with regional shares outside of Japan hitting a 17-month low, on the growing risk of a sharp global economic slowdown.
The dollar hovered near six-month highs against a basket of major currencies, with investors watching oil and stock markets for direction.
Data showing Japan's economy contracted in the second quarter added to a sense of unease about growth prospects and reinforced concerns that the world's second-largest economy may have slipped into a recession.
Also, credit woes showed no signs of ending after a year, with JPMorgan Chase & Co, the No.3 U.S. bank, saying on Tuesday it chalked up $1.5 billion in losses so far this quarter on mortgage-related assets.
That weighed on U.S. shares overnight.
"Fresh credit worries and the subsequent share falls on Wall Street are weighing on sentiment," said Hwang Geum-dan, a market analyst at Samsung Securities in Seoul.
"Despite oil's falls, investors remain cautious as concerns about fundamentals such as economies and corporate earnings pervade the markets."
Japan's Nikkei share average fell 2.2 percent, led lower for a second day by shares of clothing company Fast Retailing
Japan's economy shrank 0.6 percent in the second quarter, as expected, ending the longest period of expansion since World War Two. Economics Minister Kaoru Yosano said the economy could shrink further but a contraction would not last long.
Stocks elsewhere in Asia-Pacific slid about 1.6 percent to the lowest since March 2007, according to an MSCI index. The index has fallen 32 percent since hitting an all-time high last November.
Hong Kong's Hang Seng index fell 1.7 percent, dragged down by shares of China Mobile, which hit their lowest in almost a year on worries the company's bottom line is vulnerable to slower growth.
South Korea's KOSPI slipped about 1 percent, with technology heavyweights Samsung Electronics and LG Electronics leading the way lower.
Crude oil prices and the U.S. dollar continued to trade close together, with a decline in one coinciding with a rise in the other.
Analysts say one of the biggest uncertainties as to whether the dollar's 10 percent rise against the euro since mid-July is sustainable is whether oil prices will start climbing again.
"We remain wary of any rebound in oil and commodity prices as it could trigger a partial reversal of recent moves," said Brian Kim, currency strategist with UBS in Stamford, Connecticut.
"Although markets have moved quickly, we expect further consolidation of new ranges up ahead and shift our euro/dollar forecasts to $1.51 and $1.47 for 1 month and 3 months, respectively," he said in a note.
The euro edged up 0.1 percent to $1.4925 after hitting its lowest since February around $1.48 on Tuesday. Against the yen, the dollar fell 0.4 percent to 108.80 yen moving further away from a 7-month high above 110 yen hit on Monday.
The September U.S. light crude contract nudged up to $113.25 a barrel off Tuesday's three-month low of $112.31.
Despite crude's small comeback, there are growing signs of a significant drop in energy demand from the world's top consumers of oil.
U.S. crude demand in the first half fell by the most since 1982, a government report showed. That data followed a report on Monday that said July crude imports by China fell by a surprising 7 percent to a seven-month low.
