Asian markets slumped as traders turned their attention after the US debt deal to the weakening global economic outlook and fears of fresh sovereign debt contagion in the euro zone.
Despite President Barack Obama signing off on the deal to raise the US debt ceiling and avoid a devastating default, equities suffered a heavy sell-off and investors put their cash in safe haven gold, which surged to a record high.
Tokyo dived 2.21 per cent by the break, Hong Kong fell two per cent and Sydney tumbled 2.10 per cent while Seoul was 2.64 per cent off.
Shanghai was flat.
The red ink in Asia followed similar losses on Wall Street, where markets fell for an eighth straight day, the longest losing streak since the beginning of the financial crisis in October 2008.
The Dow sank 2.19 per cent, the S&P 500 dropped 2.56 per cent and the tech-heavy Nasdaq shed 2.75 per cent.
The Nasdaq and S&P 500 both closed below where they started the year, while the Dow is at its lowest since mid-March.
Investors were unmoved by news that Moody's Investors Service affirmed the US's Aaa rating after the 11th-hour deal to avert a default by Washington.
As US default fears lifted, attention turned to the economic outlook. And traders were spooked, with a report showing US consumer spending declined in June, the first drop in nearly two years, suggesting the economy is stalling.
That followed results showing manufacturing virtually stalled in the US as well as across Europe and Asia.
However, bond markets were roiled by troubles in the euro zone.
In overnight trade, concern was focused on Italy and Spain with spreads between yields on their sovereign bonds and those of Germany hitting record levels, dampening hopes that the euro zone debt crisis might soon be over.
The premium demanded for buying Spanish 10-year bonds over safe-bet German bonds surged to more than four percentage points - 404 basis points - the highest since the introduction of the euro in 1999.
Investors sold down Spanish and Italian bonds on concerns that their debt problems would only get worse as economic growth slows.
On currency markets, the euro softened against the greenback in Asian trade, easing to $US1.4183 in Tokyo from $US1.4202 in New York late Tuesday. The euro fetched 109.57 yen against 109.51 yen.
The dollar was rangebound at 77.25 yen compared to 77.14 yen.
Risk aversion sent the price of gold to a record high $US1662.00-$1663.00 overnight as investors looked for safer vehicles amid times of uncertainty.
The precious metal opened slightly lower in Hong Kong at $US1653.00-$1654.00 an ounce, up from Tuesday's Hong Kong close of $US1627.50-$1628.50.
However, worries of a drop in demand hit oil. New York's main contract, light sweet crude for September delivery eased 49 cents to $US93.30 a barrel and Brent North Sea crude for September delivery sank 65 cents to $US115.81.
AFP