Further signs that China's post-pandemic recovery was fading added to the downbeat mood on trading floors, as did worries that the US Federal Reserve is likely to increase interest rates again next month.
The buoyant mood that started the week, after US President Joe Biden and House Speaker Kevin McCarthy finalised a debt deal, was giving way to a fear that the far-right Freedom Caucus could torpedo it.
Members on both sides of the political spectrum have raised concerns about the agreement, with Republicans saying it does not have enough spending cuts and the left wing of the Democratic Party unhappy that Biden agreed to any limits at all.
The Treasury has warned that if the borrowing ceiling is not lifted by June 5, the government will run out of cash to service its debt obligations.
While McCarthy has described the deal as "transformational" and expressed confidence the bill will pass, leading Freedom Caucus member Chip Roy called it a "turd sandwich".
"Not one Republican should vote for this deal. It is a bad deal. No one sent us here to borrow an additional $4 trillion to get absolutely nothing in return," Roy said at a Freedom Caucus news conference.
He later warned McCarthy would face a "reckoning". That came as another GOP Representative, Dan Bishop, called party members to vote McCarthy out as speaker.
And CMC Markets analyst Michael Hewson said ratings agencies were "already sharpening their pencils on downgrades for the US credit rating".
Still, House Democratic leader Hakeem Jeffries remained confident, telling Bloomberg Television: "We will be able to get this bill over the finish line tomorrow."
- Fed meeting in view -
But with the House vote due later Wednesday, nervous investors were shifting out of risk assets, sending Asian markets well into the red.
Hong Kong led losses, dropping nearly two percent, while Shanghai was also well down.
There were also big losses in Tokyo, Sydney, Seoul, Mumbai, Bangkok, Singapore, Taipei, Wellington, Manila and Jakarta.
London, Paris and Frankfurt fell in the morning and US futures were also in negative territory.
Sentiment was given an extra jolt after data showed China's manufacturing activity contracted even further last month as leaders struggled to kickstart the world's number-two economy.
The country's growth has stalled this year, despite expectations for a surge after strict Covid rules were lifted at the end of last year.
"China's uneven economic recovery is one of investors' concerns, along with geopolitics," said Vey-Sern Ling, at Union Bancaire Privee.
"More stimulus from the government may help, but evidence of sustainable longer-term growth will be required to clear investors' doubts."
Data showing inflation remained sticky in the United States ramped up expectations the Fed will hike rates again next month, denting hopes it will pause after more than a year of tightening.
"More likely than not the Fed will continue to tighten and that is going to lead to a recession," said Shana Sissel at Banrion Capital Management.
"It's going to take time before we start to see the real impact of the Fed policy on the system."
Recession worries were increased by news that US consumer confidence hit a six-month low in May, with the jobs market and future business conditions among the key issues.
The uncertain demand outlook caused by the stuttering US and Chinese economies, as well as long-running tensions between the two powers, also weighed on oil prices.
Both main contracts extended Tuesday's loss of more than four percent, with traders keeping tabs on an upcoming meeting between OPEC and other major producers.
- Key figures around 0810 GMT -
Tokyo - Nikkei 225: DOWN 1.4 percent at 30,887.88 (close)
Hong Kong - Hang Seng Index: DOWN 1.9 percent at 18,234.27 (close)
Shanghai - Composite: DOWN 0.6 percent at 3,204.56 (close)
London - FTSE 100: DOWN 0.5 percent at 7,485.91
Euro/dollar: DOWN at $1.0671 from $1.0739 on Tuesday
Dollar/yen: DOWN at 139.73 yen from 139.80 yen
Pound/dollar: DOWN at $1.2361 from $1.2404
Euro/pound: DOWN at 86.33 pence from 86.48 pence
West Texas Intermediate: DOWN 0.8 percent at $68.91 per barrel
Brent North Sea crude: DOWN 0.8 percent at $72.95 per barrel
New York - Dow: DOWN 0.2 percent at 33,042.78 (close)