SINGAPORE (Reuters) -- Asian shares dropped sharply while Japanese government bonds and the yen rose on Friday as investors fled riskier assets, fearing rising costs of corporate credit will damage the U.S. economy.
Japan's Nikkei stock average fell 2.4 percent to close at a three-month low.
The yen hit a three-month high against the dollar as investors, rattled by weak U.S. housing data and problems in credit markets, rushed to buy back the Japanese currency they had borrowed to finance purchases of higher-yielding assets.
The yen hit 118.02 per dollar in early trade but had dropped to around 118.60 by 0630 GMT as some Japanese investors started buying the dollar again.
Japan's Nikkei stock average fell 2.4 percent to close at a three-month low after Thursday's 0.9 percent decline.
Sony was among the few which bucked the trend, gaining 1.1 percent after its results beat expectations.
Other stock markets in the region also tracked overnight losses on Wall Street, which suffered its worst drop since the last global sell-off on February 27.
The VIX index, a measure of volatility, spiked to its highest level since June last year in U.S. trading.
"We might see a rebound but it's going to be like one of those boxers trying to get up after being knocked down," said Lim Chang-gue, a fund manager at Samsung Investment Trust Management.
"The long-term outlook for stocks is still positive, but right now investors are shifting into less risky assets, and who knows when that will be reversed."
MSCI's index of Asia Pacific stocks excluding Japan fell 3.4 percent, moving further away from a record high hit just earlier this week on the back of strong earnings and solid economic growth across the region. South Korean stocks suffered their biggest one-day drop in three years, and Taiwan's fall was the sharpest in over a year, with both markets closing down more than 4 percent.
Shares in Hong Kong fell 2.7 percent, Australian stocks dropped 2.8 percent and Singapore slipped 3.1 percent. E-mail to a friend 
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