Tokyo's benchmark stock index plunged on Thursday, finishing below the 27,000-mark for the first time in more than a year.

This came after the US Federal Reserve signaled that it could raise interest rates as early as March to tackle inflation. Investors are worried the move would affect the global economy.

The Nikkei Average ended the day at 26,170, down 841 points or 3.1 percent from Wednesday's close. Traders offloaded shares across the board. It was the third straight day the Nikkei 225 has dropped.

The bearish mood extended to other markets in the Asia-Pacific region. Benchmark indexes in Seoul and Hong Kong are down sharply while Sydney dropped 1.77 percent.