Japan's Nikkei share average dropped sharply on Friday morning with securities hammered by fears of contagion from Spain's ailing bank system and a strong yen pushed down exporters.
The Nikkei dropped 2.4% to 8,652.04, having dropped through support at 8,800. The broader Topix followed suit with a 2.5% fall to 728.81.
"Almost everybody is trading for no longer than a couple of days now and the hedge funds are trying to make hay out of this by shorting stocks aggressively," said a trader at a foreign bank. "They just have the market to themselves and can knock stocks down because there's nobody to support them."
Concerns a weakening banking sector in Spain could negatively impact its counterpart in Japan pulled securities down 4.3%, with Nomura Holdings losing 4.2%.
Banks were also weighed on by a Fitch Ratings report that the world's top 29 banks may need a total $566 billion to meet tougher new capital rules, cutting returns by a fifth and forcing them to curb investor payouts and raise customer charges.
Nintendo Co Ltd dropped 3% while fellow game company Konami Corp lost 2.2% after US GameStop Corp forecast second quarter earnings below estimates, as the world's largest retailer of video game products struggles with slowing videogame hardware and software sales.
"Even though Japanese stocks are reasonably priced at the moment, fears about Europe are intensifying, and the strong yen won't help matters," said Hiroichi Nishi, equity general manager at SMBC Nikko Securities.
Weak US data overnight contributed to the overall bearish atmosphere.
The euro dropped to a 3-1/2 month low and the dollar went back under 80 yen, sending exporters tumbling. Toyota Motor Co dropped 3.7% and was the most heavily traded stock by turnover on the main board. Nikon Corp shed 5.7%, underperforming its peers after Nomura downgraded its rating on the camera maker to "neutral" from "buy" and slashed its price target to 2,667 yen from 2,914.
