By Tomo Uetake
MSCI's broadest index of Asia-Pacific shares outside Japan tumbled 1.5 percent, while Japan's Nikkei average sold off as much 1.9 percent to hit a six-week low. Chinese shares also headed south, with the Shanghai Composite index down 1.8 percent, South Korea's KOSPI and Australia's S&P/ASX 200 slipped 2.0 percent and 0.6 percent, respectively.
The sharp downturn followed from an equally harsh session on Wall Street on Tuesday, where the Dow Jones Industrial Average fell 1.6 percent, the S&P 500 lost 1.2 percent and the Nasdaq Composite dropped 0.5 percent. The financial sector took a hard hit.
Investors fear that repeat elections in the euro zone's third-largest economy - which could come as soon as July - may become a de-facto referendum on Italian membership of the currency bloc and the country's role in the European Union.
"The way Italy's short-term debt yields are spiking makes you think default risk is on radar in the market. It tells how grave the situation is," said Makoto Noji, senior strategist at SMBC Nikko Securities.
"What the markets are starting to factor-in is not a default per se but an early election leading to a victory of eurosceptics and an exit from the euro."
Short-dated Italian bond yields - a sensitive gauge of political risk - soared 1.5 percentage points from Monday to their highest since 2013 in their biggest move in nearly 26 years.
Tradeweb Markets LLC reported average trading volume in the debt is up by more than 60 percent in May compared to the month prior.
Safe-haven U.S. Treasury bonds and German bunds rallied, as did the Japanese yen, the U.S. dollar and gold. The euro fell against the Swiss franc, Japanese yen and U.S. dollar, nearing $1.15 and touching its lowest point since July.
In Asia, the focus was also on the on-again, off-again U.S.-North Korean summit and the U.S.-China trade relationship.
A top North Korean official was headed to New York on Tuesday for talks with U.S. Secretary of State Mike Pompeo, the latest indication that the summit between President Donald Trump and North Korean leader Kim Jong Un may go ahead next month.
Trump confirmed in a tweet that Kim Yong Chol, a former spy chief and trusted adviser to North Korea's leader, was on his way for what would be the highest-level meeting in this week's flurry of diplomatic activity aimed at salvaging the historic summit.
U.S.-China trade tensions also added to the sombre mood in markets.
The United States said on Tuesday that it would continue pursuing actions on trade with China, prompting Chinese state media to slam the U.S. announcement.
Emerging market stocks lost 1.2 percent, marking a new low point for the year, under continued pressure from a rising U.S. dollar for countries that often borrow in that currency.
"It's not surprising that investors fled fragile emerging markets and southern Europe and sought safety in cash," said Yasuo Sakuma, chief investment officer at Libra Investments.
Oil struggled under pressure from expectations that Saudi Arabia and Russia would pump more oil to counter potential supply shortfalls from Venezuela and Iran, even as U.S. output has surged in recent years.
U.S. crude futures retreated 0.4 percent to $66.46 per barrel, extended falls after declining for five consecutive sessions.
(Reporting by Tomo Uetake; Additional reporting by Hideyuki Sano; Editing by Richard Pullin, Sam Holmes & Shri Navaratnam)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)