Asian shares slumped and were headed for their biggest daily fall in four weeks, while US Treasuries gained after an American task force rejected turnaround plans for automakers General Motors and Chrysler.
The US announcement by the White House autos panel marked a stunning reversal for GM and Chrysler and raises the prospect of bankruptcies that could further debilitate the already ailing American economy.
The news sparked a fresh wave of risk aversion among investors, boosting the yen and US Treasuries and setting back a stocks rally that started earlier this month.
News on the US auto firms comes ahead of a busy week that will feature the G20 gathering in London, a policy meeting by the European Central Bank, and employment data in the United States.
Japanese shares closed down 4.53% on Monday. The Nikkei index plunged 390.89 points to 8,236.08, while the broader Topix index of all first-section shares fell 34.99 points to 789.54.
Shares in South Korea, Hong Kong, Taiwan, Singapore, and India were down more than 3%.
In Australia, the share market was lower. The benchmark S&P/ASX200 dropped 67.9 points, or 1.85%, to 3,604.4, while the broader All Ordinaries lost 61.4 points, or 1.7%, to 3,554.2.
The New Zealand benchmark index was down 11 points, or 0.43%, to 2641 on turnover of $45 million.
Top shares were mixed. Telecom was up 4 cents to $2.32, while Fletcher Building rose 5c to $6.45. Contact Energy fell 29c to $5.86.