Gold hit a record euro high at 918.74 euros an ounce and the yen strengthened, both benefiting from safe-haven buying from investors rattled by warnings from European leaders that the problems facing Greece could spread across borders.
The euro fell below $1.28 in Asia, its lowest level since March of last year, and down over 10 percent since the start of the year.
Japan's Nikkei average .N225 fell more than 3 percent to its lowest level in nearly two months as the market caught up with the global selloff following a three-day holiday this week.
"The focus stays on the euro as the contagion trade persists," said JP Morgan in a morning note. "Today's ECB meeting has grown immensely in importance as the redeployment of some form of credit crisis tools seems increasingly possible."
The European Central Bank holds its monthly meeting later on Thursday and, while it is expected to keep rates unchanged at 1 percent, it is likely to try to assure markets that it can prevent the Greek debt crisis spreading.
The cost of insuring Greek, Spanish and Portuguese debt against default has been rising. Moody's placed Portugal's credit rating on a three-month review, pointing to a downgrade and pushing the cost of insuring against the country's default risk to a record high.
Asian shares outside Japan fell on Thursday, following Wall Street and Europe, with the MSCI index dropping over 1 percent
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Australian shares .AXJO fell 1.3 percent and Seoul's composite KOSPI stock index opened more than 2 percent down. Shanghai and Hong Kong stocks were lower.
U.S. stocks fell between 0.6 and 0.7 percent, finding little support from a private-sector report showing gains in the U.S. labor market for the first time since January 2008.
The U.S. government's comprehensive labor market report for April is released on Friday.
Investors are worried that Greece will not be able to carry out the austerity measures it pledged to gain a record 110 billion euro IMF/EU aid package.
Violent protests on Wednesday in Athens against the budget cuts intensified their fears.
Athens vowed it would not retreat from its measures whatever the political price, but investors, so far, remain unconvinced.
"The focus right now is primarily on how this is going to play out in Europe, how much damage is going to be done," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co.
"How this gets resolved will tell the rest of the euro countries that are under pressure, 'Here are the parameters for help.'"
The euro's weakness helped the dollar index hold impressive gains this week. The index .DXY was at 84.11, not far from a one-year high of 84.31 hit earlier in the session.
The euro fell sharply against the yen on Wednesday but was relatively steady against the currency on Thursday at 120.55 yen.
Policymakers, including the European Central Bank's Axel Weber, and International Monetary Fund chief Dominique Strauss-Kahn warned of the dangers of contagion in other high-debt euro zone nations.
German Chancellor Angela Merkel put the crisis in more stark terms.
"We're at a fork in the road," Merkel told German lawmakers. "This is about nothing less than the future of Europe, and with it the future of Germany in Europe." [ID:nLDE6440HH]we were dear to each other
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