The US Federal Reserve raised rates in September as the economy grows solidly.
A man walks past an electronic board showing Hong Kong share index outside a bank In Hong Kong, Thursday, Oct. 11, 2018.
"As uncertainty continues to prevail in financial markets across the world, many investors are staying on the sidelines until more clarity emerges in U.S. Treasury and Chinese markets", said Yasuo Sakuma, chief investment officer at Libra Investments, according to Reuters.
Japan's benchmark fell by an unusually wide margin of 3.9 percent and China's main index lost 4.3 percent. In Australia, the benchmark ASX 200 dropped 2 per cent on opening to 5,926. Strong economic data and a positive outlook from Fed officials have led to a sell-off in U.S. Treasury bonds, particularly longer-term ones, sparking concerns about even higher interest rates.
President Trump on Wednesday strongly criticized the Fed for tightening rates, again signaling that he wanted interest rates to remain low. "It's so tight. I think the Fed has gone insane", he told the media after arriving for a campaign rally ahead of the United States mid-term elections.
The shift in yields is also sucking funds out of emerging markets, putting particular pressure on the Chinese yuan as Beijing fights a protracted trade battle with the United States.
Treasury Secretary Steven Mnuchin warned China against "competitive devaluation" of its currency against the US dollar as the trade war escalates.
A US-led trade war against China has also made investors anxious about the outlook for global growth.
Tokyo's Nikkei 225 gave up 3.9 percent to 22,590.86 and the Shanghai Composite lost 5.6 percent to 2,573.11. The Kospi in South Korea fell 4 percent to 2,139.51.
The sharp falls across Asia were "no worse than anticipated", analysts said.
Earlier this morning, Wall Street suffered its worst trading day in eight months, with the Dow Jones Industrial Average plunging 832 points to 25,599.
Stock markets in Asia dropped sharply Thursday morning, with investors from Australia to Japan and everywhere in between reacting to the sell-off in US markets triggered by fears of that rising interest rates will lead to slower growth in the world's largest economy.
The S&P 500 index sank 3.3% to 2,785.68. The Nasdaq composite, which has a large contingent of technology stocks, was 4.1 percent lower at 7,422.05.
"It's primarily the cumulative effect of interest rate moves over the past five days and news reports about trade impacting companies", he added.
The Russell 2000 index of smaller-company stocks shed 2.9%, to 1,575.41. Apple and Amazon, the two most valuable companies in the S&P 500, each had their worst day in two and a half years. Netflix was down more than 8 percent, Amazon was off 6 percent, and Apple and Google were both down more than 4.5 percent.
Francis Tan, an investment strategist at UOB Private Bank, believes that the markets will pick up in the USA session.
"The valuation of USA stocks, especially tech stocks, is still pretty high and there could be some profit taking actions now", Mr Tan explained. The big four banks were between 1.9 and 1.33% lower, with ANZ leading the quartet down.
The dollar slipped to 112.17 Japanese yen from 112.27 yen late on Wednesday.
Brent crude fell 76 cents to $82.33 a barrel, while US crude dropped 68 cents to $72.49.
"Earnings are really important because that was part of the concern that sparked the sell-off", Darrell Cronk, president and chief investment officer at Wells Fargo Investment Institute, told Bloomberg TV in NY. Brent crude, the global standard, dropped 76 cents to $82.33 a barrel.