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 "Its difficult to call where the bottom is," said Richard Hunter, a broker at Hargreaves Lansdown in London.
Oil prices hit a record in Asian trading, U.S. stock index futures fell sharply and the dollar hit record lows.
JPMorgan said Sunday it would buy Bear Stearns for $236.2 million -- $2 a share
-- in a stunning fall for one of the world's largest and most venerable investment banks. The bank was dragged down by its exposure to bad mortgages, the same burden that has led to more than $150 billion in write-downs by banks worldwide.
European stocks fell in morning trading. The U.K.'s benchmark FTSE 100 dipped 2.3 percent to 5,503.6 while France's CAC 40 slid 2.7 percent to 4,468.28. Germany's DAX slipped 3.3 percent. Financials were especially hard hit, with Switzerland's UBS down 9 percent.
"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.
Investors were already skeptical about the JP Morgan deal, which was completed with the backing of the U.S. government.
"Just buying an investment bank does not solve the problem," Hunter said. "Markets are prodding (the U.S. government) to inject public funds."
News of the acquisition of Bear Stearns stunned investors just before markets opened in Tokyo and Seoul. Both fell sharply before paring some losses in afternoon trading.
Japan's benchmark 225 index sank 3.7 percent to close at 11,787.51 points, its lowest in more than 2 1/2 years. Hong Kong's Hang Seng index fell 5.2 percent to finish at 21,084.61.
Across the Asia-Pacific region, all major stock indexes were down, including markets in Australia, China, South Korea, Indonesia and the Philippines. India's Sensex dropped 5.1 percent in afternoon trading.
"We are worried" about what comes next, Shim Jae-youb, a strategist at Meritz Securities in Seoul, said of concerns that other banks may collapse.
Shim said investors were on guard ahead of the release of quarterly earnings reports from big U.S. investment banks this week, including Lehman Brothers Holdings Inc., Goldman Sachs Group Inc., and Morgan Stanley. Bear Stearns called off its report.
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 In an extraordinarily move, the Federal Reserve cut the discount rate, its lending rate to financial institutions, to 3.25 percent from 3.5 percent, effective immediately. The Fed also created another lending facility for big investment banks to secure short-term loans that would be available to big Wall Street firms on Monday.
The Fed was also widely expected to again cut its headline interest rate, the fed funds rate, by as much as a full percentage point to 2 percent at a regular meeting set for Tuesday.
In currency trading, the dollar plunged as low as 95.72 yen -- its lowest since August 1995
-- dragged down by a gloomy outlook for the American economy and prospects for lower interest rates. The euro rose to a record high $1.5903.
Japanese officials quickly called for calm in the currency markets, but did not announce any plans for intervention to shore up the greenback by buying up dollars.
Oil prices, meanwhile, hit an all-time trading high in Asia as the greenback's tumble and the decline in stock markets prompted investors to seek shelter in commodities such as crude oil. Light, sweet crude for April delivery spiked to a record $111.80 a barrel in electronic trading on the New York Mercantile Exchange.
On Friday, U.S. stocks sank after the announcement of a Fed plan in conjunction with JPMorgan to alleviate the liquidity crisis at Bear Stearns touched off concerns about the severity of credit troubles in the world's largest economy. The Dow Jones industrial average fell 194.65, or 1.60 percent, to 11,951.09.
Wall Street appeared poised for another drop when trading resumed Monday morning. Dow index futures were down 164 points, or 1.4 percent, to 11,818, while the Standard & Poor's 500 index was down 21.7 points, or 1.65 percent, to 1,291.6.
Further slides in Asian markets are likely, said Ismael Cruz, the governor of the Philippine Association of Securities Brokers and Dealers, Inc.
"The outlook is very grim," he said.
[Associated Press; By TOBY ANDERSON]
Associated Press writers Chisaki Watanabe in Tokyo, Gillian Wong in Singapore, Anthony Deutsch in Jakarta and Kelly Olsen in Seoul contributed to this report.
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