The early confidence produced by the Federal Reserve's decision to hold interest rates last week turned to fear on Monday as traders took the bank's dovish outlook as a sign of weakness in the global economy.
Most high-yielding -- or riskier -- currencies, which enjoyed healthy rallies last week, retreated as investors moved back into safer assets such as the yen.
The euro held up against the yen and dollar, however, after Prime Minister Alexis Tsipras won his second election this year despite a controversial austerity deal struck with European leaders, raising hopes for some stability in the troubled country.
Chinese stocks retreated again after authorities continued their crackdown on "illegal market activities" in a bid to restore confidence in the country's markets following three months of wild volatility that has seen trillions wiped off valuations.
And on Sunday Premier Li Keqiang called for reforms of inefficient state-owned enterprises as part of a drive to reassure investors about Beijing's handling of a crisis gripping the world's number two economy.
While Asian markets ended broadly higher Friday in response to the Fed's rate decision, having feared a rise would draw investment from emerging economies for higher returns in the United States.
But shares in Europe and New York tumbled as traders took it to mean the bank is concerned about the global outlook.
Fed chief Janet Yellen said bank policymakers cited the ongoing slowdown in China and recent turmoil on world markets as playing a role in the decision.
Analysts also said it will prolong uncertainty about when rates will eventually rise.
"Investors seemingly decided that the Fed’s baulk was a sign that things are worse in the world than they actually appear," Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand Ltd., said in an e-mail to clients.
"The Fed's decision to hold last week means we're in for, at the very least, another six weeks of 'will they, won't they.' Risk markets are unlikely to like the message that the Fed remains very ready to hike."
- Emerging currencies slip -
On Monday Hong Kong was down 1.28 percent, Shanghai lost 0.15 percent and Seoul was 1.48 percent off. Sydney tumbled 2.50 percent. Tokyo was closed for a public holiday.
Emerging currencies also suffered selling pressure, with South Korea's won 0.80 percent lower, Malaysia's ringgit 1.00 percent down, the Indonesian rupiah 0.59 percent down, and the Thai baht off 0.31 percent.
Australian, Singapore, Taiwan and New Zealand also saw their respective dollars sink.
However, while there has been a flight to safety, the euro maintained some strength after Tsipras' victory in weekend polls, which will see him form a coalition government.
The win gives the premier a much-needed endorsement after he pushed through controversial austerity measures in order to prevent the country defaulting on loans and possibly exiting the eurozone.
The euro fetched $1.1309 and 135.55 yen compared with $1.1299 and 135.57 yen in New York.
Attention this week will now be on the release of preliminary Chinese factory activity data, the latest indicator on the health of the economy.
China is struggling to restore confidence after an extended plunge on the Shanghai stock exchange, along with global market jitters over an ongoing growth slowdown and questions over its communist leaders' economic management skills.
In its latest attempt to settle traders concerns premier Li said state-owned enterprises (SOE) "are in urgent need of reforms as... poor management [has] resulted in declining profits", according to the state-run news agency Xinhua.
Last week China issued a guideline to deepen SOE reforms, with the aim of making them more creative and internationally competitive.
-- Bloomberg News contributed to this story --