Asian countries are looking nervously at Europe to see if frantic efforts by governments there succeed in calming investors' fears over the worst financial crisis in 80 years.
The initial reaction to the European effort however failed to comfort financial markets. Investors from Tokyo to London slashed risk from portfolios and positioned for a further tightening of credit and bank lending and the rising risk of a serious global economic recession.
Despite concerted efforts to stem the crisis, investors were clearly seeking more concrete steps from authorities, perhaps in the form of coordinated action from next weekend's meeting of the Group of Seven industrial nations.
Germany offered blanket deposit guarantees and other European countries followed suit.
In a sign that the crisis is biting deeper in Asia, South Korea said it wanted to hold talks with China and Japan.
The Bank of Japan offered to lend one trillion yen (RM34 billion) against pooled collateral in an auction to inject liquidity into the market. South Korea's finance minister said the country would dip into its foreign exchange reserves, the world's sixth-largest, to help with loans.
Across Asia, all markets were also in the red. Tokyo's Nikkei 225 index fell to its lowest level in 41/2 years, sinking 4.25 per cent to 10,473.09. Hong Kong's Hang Seng index slid five per cent to 16,803.76.The KL Composite Index shed 19.86 points to close at 996.84.
Markets in mainland China, Australia, South Korea, India, Singapore and Thailand also fell sharply. Indonesia's key index plummeted 10 per cent, its biggest one-day drop ever.
"Everyone is losing confidence," said Mark Tan, who helps manage about US$20 billion of equities and bonds at UOB Asset Management in Singapore.
"The problem now is that the lack of foreign confidence could affect the Asian consumer, which would lead to a bigger slowdown in Asia than expected."
"This credit crunch looks like it's not going away any time soon," said Alex Tang, head of research at brokerage Core Pacific-Yamaichi in Hong Kong.
"Apart from a credit crunch in Europe, investors are quite concerned about the worsening outlook on the US economy."
Belgian Prime Minister Yves Leterme said on Sunday that France's BNP Paribas had committed to taking a 75-per cent stake in troubled European bank Fortis. .
Britain's finance minister Alistair Darling said he was ready to take "pretty big steps that we wouldn't take in ordinary times" to help the country weather the credit crisis.
The outlook for the US economy darkened after figures released on Friday showed that 159,000 jobs in the US were lost last month, the fastest pace in more than five years.
Such concerns overshadowed any investor optimism over the US congressional approval on Friday of a massive government bailout plan to buy distressed mortgages and securities backed by mortgages.
Investors questioned how long it would take for the package to unfreeze credit markets, restore bank lending and generally shore up the US economy.
Oil prices tumbled on speculation that slower global growth will cut crude demand. Light, sweet crude for November delivery was down US$3.23 to US$90.65 a barrel in New York.
That the financial crisis in the US had truly crossed the Atlantic was confirmed on Sunday when Germany pledge to guarantee private deposit accounts, a move which spurred similar action by Austria and Denmark. Ireland issued the first such guarantee last week, prompting criticism of a fragmented European Union response.
Sweden became the latest country to act, with expanded bank deposit guarantees and the central bank raising the amount of loans offered to banks.
European banks have been hit hard by the fallout from the collapse of the US housing market collapsed and bad mortgage debts.
The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets, pushing industrialised countries closer to recession.
The various deposit guarantee moves were putting intense pressure on countries such as Britain, which face the prospect of a drain in deposits from their banks.
Britain's government promised yesterday said it would not leave ordinary savers unprotected but said it had no plans to respond immediately to Germany's move.
German Finance Minister Peer Steinbrueck said Berlin was working on a new plan to protect the entire German bank sector, not just individual institutions that came under stress.
He made clear this would not be a Europe-wide solution that would mirror the US$700 billion rescue package agreed in the United States.
Finance ministers from the euro zone countries were meeting in Luxembourg yesterday to discuss future moves.
In the banking industry, France's BNP Paribas scooped up the assets of Fortis in Belgium and Luxembourg for E14.5 billion to stem a cash drain on Fortis and Dexia.
Citigroup Inc and rival Wells Fargo & Co are under pressure to compromise over their competing bids for hobbled US bank Wachovia Corp. None of the moves were reassuring investors yesterday, however. -- Agencies
