(CNN) -- Asian stock markets tumbled in early trade on Thursday, reacting sharply to global fears that Italy's debt crisis could trigger a European recession.
The slump tracked Wall Street where the Dow Jones industrial average fell almost 400 points in one of the steepest declines in more than a month. The Dow finished down 389.24 points, at 11,780.94, its worst decline since Sept. 22.
Leading indices in Asia declined at the open. Japan's Nikkei 225 index fell 2.1% to 8,569 while Hong Kong's Hang Seng index plummeted 4.1 percent to 19,189. South Korea's Kospi dropped 2.6% to 1,858 and Australia's S&P ASX 200 lost 2.7% to 4,230.
Italy, Europe's fourth largest economy, headed deeper into crisis on Wednesday after its borrowing costs exceeded 7% -- a psychologically important threshold since Greece, Portugal and Ireland required bailouts when their 10-year bond yield broke through this level.
Selling intensified in Europe too after European Union officials said there were no plans to rescue Italy because its debt -- at $2.6 trillion -- was too large for eurozone countries to absorb.
The selling intensified in the afternoon amid reports that European Union officials said they have no plans to rescue Italy.
While Italy's bond rates are triggering intense market anxiety, experts say the problem is a lack of investor confidence, rather than solvency, which is plaguing debt-laden eurozone neighbors like Greece.
"This is a crisis of confidence, not of fundamentals," said Mark McCormick, currency strategist at Brown Brothers Harriman. "Italy's debt level is sustainable, but it needs to implement policies that will support economic growth."
If Italy works to solve its problems, the European Central Bank or International Monetary Fund will likely have the leverage that they need to step in with an emergency policy response to help reduce nervousness, said McCormick.
"We're already hearing rumors of an emergency ECB meeting, so they could come in and aggressively buy more Italian bonds," said McCormick. "But it's a moral hazard for the ECB to buy a country's debt unless that country is addressing its long-term problems."
A set of economic reforms is making its way through the Italian parliament, and Prime Minister Silvio Berlusconi has agreed to resign after the budget reforms are approved. But that may not happen until December.
CNNMoney's Hibah Yousuf contributed to this report