MSCI's broadest index of Asia-Pacific shares outside Japan fell 1 percent to its lowest in nearly four months. At current levels, the index will see a weekly fall of more than 4 percent, the biggest weekly loss since late November.
Australian shares eased 0.3 percent, led down by financials, and on course for its worst weekly performance this year, while South Korean stocks plunged 1.2 percent, also with financials underperforming.
Japan's Nikkei share average was nearly flat ahead of China's industrial output and retail sales due at 0530 GMT.
Earlier on Friday, China said its annual consumer inflation moderated to 3.4 percent in April from 3.6 percent in March, but above 3.3 percent forecast. Another data showed China's producer price index (PPI) fell 0.7 percent in April from a year earlier, overshooting market expectations for a 0.5 percent fall.
Asian markets tracked a sharp fall in U.S. stock index futures on Thursday evening after JPMorgan Chase & Co said it suffered a trading loss of at least $2 billion from a failed hedging strategy, sending the benchmark Standard & Poor's 500 Index down 11.6 points.
"The markets took it correctly, saying 'wait a minute you do have more risk than previously thought, and it's not inconceivable that you and others of your class have other unforeseen losses'. And that would spook markets," said David Baran, co-founder of Tokyo-based hedge fund, Symphony Financial Partners.
"Do banks in general still have more risk and require more capital than the markets are expecting? And that's probably why S&P were down 10 points after the close," he added.
As for the Chinese data, Baran said a bad PPI number will "emphasize to investors that the issues in Europe are indeed having a profound effect in the Chinese economy."
GREECE HITS EURO
Prior to JPMorgan's announcement, European and U.S. stocks rose after data showed U.S. claims for unemployment benefits edged lower last week, soothing concerns that dismal employment growth in April pointed to worsening labor conditions.
But risk appetite remained muted largely due to heightening political and policy uncertainty in the euro zone.
The euro fell to a fresh 3-1/2 month low of $1.29050 on Friday while the Australian dollar, a risk gauge, fell as low as $1.0044, near its lowest since December 20 of $1.0021 touched on Wednesday.
"China's industrial output will be more important in measuring the recovery state of the country and its impact on currencies such as the Australian dollar," said Masafumi Yamamoto, chief FX strategist at Barclays.
"Difficulties in forming a coalition government in Greece are already reflected in the euro and the market is now eyeing whether Greek public will really opt for an exit from the euro or not. The uncertainty keeps the euro depressed under $1.30," he said, adding that JPMorgan's news may increase investors' reluctance to take risks.
As central banks focus more on growth than inflation, real yield differentials will be more significant in dictating forex market direction, especially for the euro/dollar, Morgan Stanley said in a note.
Uncertainty may drive currency market volatility, pegged at historically low levels by aggressive central bank liquidity injections globally, to pick up and prompt an unwinding of carry trades, with the dollar and the yen gaining, it added.
Oil fell, with Brent crude retreating 0.7 percent below $112 a barrel, while U.S. crude slipped 1.2 percent to $95.96 a barrel.
A weak euro weighed on gold, with spot gold falling 0.4 percent to $1,587.46 an ounce.
Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 4 basis points.
Greece struggled to form a government after a majority of voters rejected austerity measures in exchange for a bailout, putting the country at risk of bankruptcy and leaving the euro.
But euro zone officials on Thursday said euro zone countries were prepared to keep financing Greece until Athens forms a new government, whether one emerges from Sunday's election or if new elections have to be held next month.
Greece has also been saved from an imminent insolvency after the euro zone's temporary bailout fund agreed to immediately disburse a scheduled relief money to Athens.
Stakes are critically high for the European Union to keep Greece afloat as the EU is now Greece's biggest creditor and a Greek default means euro zone taxpayers will take a hit.
Spain, facing pressure on its fragile banking sector, is expected to present new reforms to complete the clean-up of its banks on Friday.
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