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 The dollar's drop to a 12-year low against the yen hammered stocks of Japanese exporters such as Toyota and Sony. The Nikkei 225 index tumbled 3.3 percent to 12,433.4, its lowest in 2 1/2 years.
In late Tokyo trading, the dollar fell below 100 yen for the first time since 1995, sinking as low as 99.75 yen.
Asian markets, which had rallied Wednesday on news of the U.S. Federal Reserve's $200 billion relief plan for tight credit markets, resumed their slide amid pessimism that the move will prevent a U.S. recession.
"This is just an extremely nervous market given the uncertainties overhanging the outlook for the world," said David Cohen, a regional economist with Action Economics in Singapore. "The clouds are the combination of the oil prices, the nervousness about the U.S. slipping into recession and dragging down the global economy and ... the turmoil in the credit markets that doesn't want to go away."
In Hong Kong, the Hang Seng Index fell 4.8 percent to 22,301.6. Benchmark indices fell more than 2 percent in Australia, China, Malaysia, South Korea and Taiwan, while markets in India and Indonesia lost more than 4 percent.
As markets opened in Europe on Thursday, the FTSE 100 dropped 1.9 percent in London, and France's CAC 40 and Germany's DAX both fell more than 2 percent.
Traders were disheartened by an overnight drop on Wall Street, where the Dow Jones industrial average slipped 0.4 percent Wednesday after surging 3.55 percent Tuesday.
U.S. stock index futures were down, suggesting the market would open lower Thursday. Dow futures were down 164 points, or 1.4 percent, to 11,959, while the Standard & Poor's 500 index futures were down 19.8 points, or 1.5 percent, to 1,289.6.
While many investors regard the Fed's plan to lend Treasuries in exchange for debt tied to mortgages as a positive step, they are hesitant to pour more money into stocks without signs the U.S. economy is reviving.
"People are still very unsure whether or not it will work. One day they rally on it, the next day they're wary whether it will do the trick," said Cohen.
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 In Tokyo, traders were alarmed by the yen's recent surge against the dollar, which erodes overseas earnings at the country's key exporters. Toyota Motor Corp. and Honda Motor Co. fell 3 percent and 4.2 percent respectively. Sony Corp. shares sank 4 percent.
Japanese financial shares were also hit hard, with Mizuho Financial Group and Mitsubishi UFJ Financial Group each dropping 6.8 percent, and Sumitomo Mitsui Financial Group skidding 7.3 percent.
Meanwhile, commodity-related stocks rose, sidestepping the overall market decline as crude futures traded near the overnight record high. Inpex Holdings rose 5.1 percent and Showa Shell added 3.2 percent.
In South Korea, steelmaker Posco plunged 6.2 percent, shipbuilder Hyundai Heavy Industries fell 4.9 percent and Samsung Electronics
-- the country's largest corporation -- fell 1.8 percent.
In Hong Kong, China Merchants Holdings plummeted 10.9 percent and Sino Land fell 10 percent. New World Development dropped 8.2 percent and China Resources fell 9.3 percent.
Besides worries about continuing fallout from the global credit crisis, investors are worried about increasing inflation pressures from the record high oil prices. They are concerned those pricing pressures could limit the U.S. Fed's ability to reduce interest rates further and boost lending efforts to spur the economy.
Oil futures hit a trading record above $110 a barrel overnight and were at $109.80 late afternoon in Singapore.
[Associated Press; By THOMAS HOGUE]
AP Business Writer Kelly Olsen in Seoul contributed to this report.
Copyright 2008 The Associated Press. All rights reserved. This
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