Asian stocks suffered fresh carnage yesterday, with leading bourses plunging by up to 5 percent as growing fears of a US recession swept across global markets, dealers said.
They said that a surprise contraction in the giant US service sector triggered concerns that the world's largest economy may be in even worse condition than previously feared.
Hong Kong tumbled 5.4 percent, Tokyo lost 4.7 percent, Singapore gave up 3.5 percent and Sydney fell 3.2 percent.
The Seoul, Taipei and Shanghai bourses escaped the latest rout, for now at least, as they were closed for the Lunar New Year holiday.
Hong Kong and Singapore also shut early for the start of the holiday and will reopen on Monday.
"The string of bad news from the US seems endless, and it may take a while before markets recover," said Francis Lun, general manager at Fulbright Securities.
Investors dumped shares after stocks plunged on US and European markets overnight, with Wall Street's Dow Jones index ending down 2.9 percent on Tuesday.
The sell-off came after the Institute of Supply Management (ISM) reported that the US services sector shrank last month for the first time in nearly five years.
The ISM non-manufacturing business activity index tumbled to 41.9 last month from 54.4, defying forecasts for a much smaller fall. It was the worst reading since the aftermath of the terrorist attacks on Sept. 11, 2001.
"This is exactly what occurred back in October 2001 when the US moved into recession," said Juliana Roadley, an equities analyst at CommSec in Sydney.
Share prices had regained some stability after a terrible start to the year as Federal Reserve interest rate cuts and a US economic stimulus plan helped to calm jitters about the outlook for the world's largest economy.
But the latest plunges showed that markets remain extremely nervous, making shares vulnerable to any bad news, analysts said.
"Recent expectations that financial markets have hit bottom were reversed in one day," said Kazuya Ito, a fund manager at Daiwa SB Investments. "There is persisting underlying instability in financial markets."
Elsewhere, Manila dropped 1.7 percent and Kuala Lumpur declined 1.5 percent.
"Given that Wall Street tanked last night and there are recession worries again, it's not a huge surprise that Singapore and the other regional markets fell," said Song Seng Wun, regional economist with CIMB-GK Research in Singapore. "That, coupled with many traders going on holiday."
The fresh market rout will inject an additional sense of urgency into this weekend's meeting of finance ministers and central bankers from the Group of Seven rich nations in Tokyo.
But most analysts predict that the G7 will offer little more than words of reassurance to investors over the subprime loan problems that have curbed US economic growth and rattled global markets.
The greenback showed resilience in the face of the unexpectedly weak report on the US service sector, as risk-averse traders looked to the US currency as a safe haven from financial market turmoil, dealers said.
The dollar slipped to ¥106.58 in Tokyo afternoon trade from ¥106.75 in New York late on Tuesday, giving back the previous day's gains.
The euro was little changed at US$1.4647 after US$1.4645.
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