Asian markets veered sharply lower Wednesday, with Tokyo's Nikkei index tumbling nearly seven per cent, amid spreading pessimism over corporate earnings outlooks in the U.S. and at home.

As credit markets show signs of improving, investors are turning their attention to dismal forecasts from major U.S. companies and Japanese media reports of disappointing sales and profit results.

Asian markets opened lower after an overnight decline on Wall Street and extended losses as the day progressed.

Japan's Nikkei 225 stock average fell for the first time in three days, dropping 631.56 points, or 6.79 per cent, to 8,674.69.

Hong Kong's Hang Seng was down 6.2 per cent, while South Korea's main index shed 5.1 per cent.

"The credit crunch seems to be behind us, and we are shifting focus to corporate earnings and economic conditions, and clearly both are deteriorating," said Alex Tang, head of research at Core Pacific-Yamaichi in Hong Kong.

Particularly hard hit were Japan's megabanks, which slumped after the Nikkei financial daily reported that Mitsubishi UFJ would miss its net profit projection for the April-September period by about two-thirds due to higher bad-loan costs and the falling value of its shareholdings.

Mitsubishi UFJ Financial Group Inc. shed 8.83 per cent and Sumitomo Mitsui Financial Group Inc. sank 8.01 per cent.

A climbing yen added to the misery in Japan, dragging down exporters such as automakers and consumer electronics firms. A stronger yen reduces the value of overseas profits when repatriated to Japan. The U.S. dollar fell to 99.57 yen in Asia on Wednesday afternoon, down from 100.23 yen late Tuesday.

Sony Corp. plunged 9.3 per cent, Canon Inc. was off 6.1 per cent, and Panasonic Corp. stumbled 8.4 per cent. Canon is due to report earnings on Monday and Honda Motor Co. on Tuesday.

South Korea's currency, the won, continued to slide against the dollar. It was down 3.1 per cent against the U.S. dollar to 1,363, bringing the won's decline for this year to 31.3 per cent.

Shares of Samsung Electronics Co., which said it has withdrawn a $26 US a share bid to acquire U.S.-based SanDisk Corp., fell 2.1 per cent to close at 508,000 won, about $373 US.

Japan's Toyota Motor Corp. lost 6.86 per cent amid media reports that the parent company this year will post its first decline in annual global sales in a decade.

Fears that the U.S. is headed into a severe recession were stoked as bellwether corporations such as chemical manufacturer DuPont Co., Sun Microsystems and Caterpillar Inc. downplayed their prospects for the coming months.

On Tuesday, the Dow Jones industrial average fell 2.5 per cent to 9,033.66, while the technology-heavy Nasdaq composite index shed 4.1 per cent to 1,696.68.

In Toronto, the S&P/TSX composite index fell 455.48 points, or 4.4 per cent, at 9,795.92, with energy, financial and gold stocks again leading the way down.

The dismal earnings outlooks also sent oil prices below $70 US a barrel Wednesday as investors shrugged off a looming OPEC production cut that is expected on Friday.