Big losses in Europe and on Wall Street on Friday fuelled the selling pressure, while the resignation of a key European Central Bank committee member also depressed sentiment.

Tokyo was 2.22 percent lower in the afternoon, with exporters again feeling the most pain as the euro sank against the yen.

The euro hit 104.90 yen in early trade, its lowest level since July 2001, compared with 107.66 yen on Friday. By 0410 GMT it had strengthened to 105.27.

It also fell to $1.3585 from $1.3649 Friday. The dollar was rangebound at 77.48 yen against 77.58 yen.

The euro's weakness also weighed on other markets, with Hong Kong diving 3.38 percent by the break, Sydney slumping 3.09 percent and Singapore off 2.13 percent.

Seoul, Shanghai and Taipei were closed for public holidays.

Greece -- which earlier this year was given the green light for a second bailout -- on Sunday announced two billion euros in budget cuts demanded by the EU and the IMF for its rescue package to avoid a default.

EU economy commissioner Olli Rehn welcomed the move and said a team would head to Athens in the next few days to look at a new tranche of Greece's first rescue package agreed in 2010.

However, European finance ministers are split over how to deal with obstacles holding up the second 160-billion-euro bailout for Greece, agreed in principle in July.

And Germany's Economy Minister Philipp Roesler pointedly said, in a column to be published Monday, that Europe could no longer rule out an "orderly default" for Greece.

On Saturday Der Spiegel magazine reported that the German government was preparing two contingency plans in the event of a Greek default.

Adding to the eurozone crisis was the resignation of Germany's European Central Bank executive committee member Juergen Stark, who was against the bank buying the bonds of under-pressure countries.

Bank watchers suggested his exit showed the ECB was deeply split over its approach to handling the sovereign debt crisis.

"It's very clear to us that this situation in Europe is not going to end well and the now plummeting euro is trying to tell you that some sort of Greek default and subsequent European bank recapitalisation programme is imminent," said Bell Potter managing director Charlie Aitken in Sydney.

Satoshi Tate, a senior dealer at Mizuho Corporate Bank, told Dow Jones Newswires: "We are watching Greece, and only Greece.

"Conditions are getting very serious and everyone is worried how the issue will unfold."

US stocks plunged after the resignation of Stark. The Dow fell 2.69 percent, the S&P 500 fell 2.67 percent and the Nasdaq shed 2.42 percent.

Oil also suffered heavy selling. New York's main contract, light sweet crude for delivery in October, dived $1.23 to $86.01 per barrel on Monday.

Brent North Sea crude for October delivery fell $1.02 to $111.75.

Gold was trading at $1,850.60 an ounce at 0410 GMT on Monday, down from $1,874.40 in late trade Friday.