Japan's Nikkei 225 Stock Average turned negative for the year after dropping 2.4% Tuesday.

That's despite better-than-expected gross domestic groduct in the second quarter. Japan's GDP shrank at an annualized 1.2%, less than the 1.6% drop reported last month.

The growth figure was not enough to boost investor confidence. The fact that the upgrade was due to a rise in inventories did not help sentiment either.

The benchmark Nikkei index closed at 17,427.08, its lowest level in seven months. That brought the market's losses to 16% from its June 24 peak.

The slump came after China, one of Japan's major trading partners, reported its August imports fell 14.3% from a year earlier, worse than July's 8.6% decline. Exports retreated 6.1%, following an 8.9% drop in July.

The dismal Chinese trade data resulted in investors dumping China-related issues, including industrial robot-maker Fanuc, automaker Honda, and electronics-maker Sony.   

Heavyweight components of the Nikkei average plunged as well. Among them mobile carriers SoftBank Group and KDDI, and clothing retailer Fast Retailing.

The broader Topix index slid 2% to 1,416.71. For each stock that rose, seven fell. Even defensive shares that are not highly correlated with the larger economic cycle took a beating. The pharmaceutical sub-index plummeted 5.2%, while the foods sub-index fell 3.5%.

The service sector sentiment index also dropped 49.3 in August, its lowest level since January.

"The difficulty for markets is that there doesn't seem to be an end to the weakness in exports, and that's the really the disappointing thing," Sean Darby, Jefferies Group Inc.'s chief global equity strategist in Hong Kong, told Bloomberg.

Darby added this development bodes ill for other markets. "It's not just China, but also Taiwan, Korea and most of Asia and emerging markets. China gets the focus because it's the biggest, but in reality, no one is having a very good time out there."