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The euro also slumped as Spain's prime minister was forced to deny corruption claims, while former Italian premier Silvio Berlusconi vowed to throw a spanner in the works of a government austerity drive ahead of a general election.
In the afternoon Hong Kong tumbled 1.54 percent but Shanghai reversed morning losses and was up 0.39 percent.
The losses come after several markets approached highs not seen for several months as confidence slowly returns, thanks to an easing of the eurozone debt crisis and a pick-up in the US and Chinese economies.
However, dealers suffered a blow Monday when Spanish Prime Minister Mariano Rajoy came under pressure to step down as he becomes engulfed in a corruption scandal.
Rajoy has dismissed claims by Spain's El Pais newspaper that he and other ruling party officials channelled donations into secret payments.
The news sent the Spanish cost of borrowing surging, reviving worries about Madrid's ability to access the debt market to keep functioning.
Berlusconi meanwhile said he would refund the money Italians have had to pay for an unpopular property tax if his coalition, headed by his protege Angelino Alfano, wins a February 24-25 election.
Recent polls have shown his party making solid gains.
Berlusconi, who would take the role of finance minister in a new government, abolished the real estate tax in 2008 but it was reinstated last year as part of Prime Minister Mario Monti's austerity budget in Italy.
In Tuesday afternoon Tokyo forex trade the euro fetched $1.3485 and 124.52 yen.
The dollar bought 92.33 yen compared with 92.11 yen in New York late Monday.
The Australian dollar eased to US$1.0409 from US$1.0444 after the country's central bank held interest rates on hold at 3.0 percent.
On Wall Street the Dow, which ended near a record high on Friday, dropped 0.93 percent Monday, while the S&P 500 fell 1.15 percent and the Nasdaq slipped 1.51 percent.
In Europe there were heavy losses on all the main indexes, with London's FTSE 100 off 1.58 percent, Frankfurt's DAX down 2.49 percent and the Paris CAC diving 3.01 percent. Madrid tumbled 3.77 percent and Milan slumped 4.50 percent.
Oil prices eased in Asia. New York's main contract, light sweet crude for delivery in March dropped nine cents to $96.08 a barrel in the afternoon and Brent North Sea crude for March shed 41 cents to $115.19.
Gold was at $1,676.20 at 0630 GMT compared with $1,665.40 late Monday.
In other markets:
-- Taipei fell 0.46 percent, or 36.22 points, to 7,886.94.
Hon Hai Precision shed 1.07 percent to Tw$83.1 while leading smartphone maker HTC was down by its 7.0 percent daily limit at Tw$266.0.
-- Wellington fell 0.81 percent, or 34.46 points, to 4,211.95.
Fletcher Building was down 2.39 percent at NZ$8.97, Telecom slipped 2.89 percent to NZ$2.355 and Contact Energy lost 1.14 percent to NZ$5.20.