HOWZAT

Takashi Ushio, head of the investment strategy division at Marusan Securities, said: “There's still a sense that the financial crisis isn't all over yet and it's definitely spilling over into the rest of the economy. We're looking at a bad downward spiral."

South Korea urged banks to sell foreign assets to raise dollars and promised to use its currency reserves to shield lenders from the financial crisis engulfing the US and Europe.

The Korean won fell 5 per cent to its weakest since 2002 and the cost of borrowing on the money market surged. The Seoul stock market, tracking a regional selloff, tumbled nearly 5 per cent to a 20-month low.

Australian shares extended their losses to 5 per cent in late trading with the top banks taking a particular beating. National Australia Bank lost 2.3 per cent amid worldwide concern about the resilience of the financial system.

David Spry, research manager at FW Holst in Melbourne, said: “There’s just nothing positive out there. Figures are bad in the States, Europe’s bad, Japan’s bad and China’s probably slowing.” Figures on Friday showed US employers cut 159,000 jobs last month, a ninth straight monthly reduction and the deepest in five and a half years.

The gloom showed up from Indonesia where stocks slumped by 5.3 per cent in early trade to Thailand, where the market was down 2.36 per cent to a new five-year low.

Hong Kong’s Hang Seng Index was down 3.4 percent at 17,089.6, with the shares of locally listed mainland Chinese companies particularly hard-hit amid concerns China’s economy may not escape a slowdown if exports are hit by a widening world recession.

Castor Pang, strategist at Sun Hung Kai Financial group in Hong Kong, said: “Weak Wall Street showing last Friday and poor jobless data in the US raised worries about the economy. Sentiment remained weak on US recession worries... amid the financial tsunami."

One of the biggest fallers was Galaxy Entertainment, a Macau casino operator, whose shares plunged more than 10 per cent after China imposed more travel restrictions on Chinese visiting the gambling haven, threatening growth of casinos. From October 1, residents of neighbouring Guangdong province may only go to Macau once every three months instead of every two months.

Chinese share prices, which have been falling steadily since late last year, dropped further as the jitters from the US failed to offset news that the authorities would allow margin trading on a trial basis. The Shanghai Composite Index was down 3.5 per cent.

Regulators, struggling to support an equities market that fell some 70 per cent in just under a year from last October, announced at the weekend that they will soon allow investors to buy stocks on margin and to engage in short-selling. That introduction, which contrasts with regulatory moves to enforce greater caution in the rest of the world, is part of a series of policies to try to revive the market.

The reforms boosted the shares of brokerages. A few houses will be allowed to conduct such trades on a trial basis before the system is expanded to other securities firms.

The MSCI index of Asia-Pacific stocks outside Japan slid 5.3 per cent to the lowest since June 2006. South Korea's Kospi was down 2.9 per cent, led by shares of Samsung Electronic and Posco, the world's fourth-largest steelmaker, the biggest drags. Korea's markets have been one of the hardest hit by a wholesale move by foreign investors away from perceived risk in Asia. The country's growing current account deficit has turned off investors, and news that local banks were having trouble securing foreign currency loans added to negative sentiment on Asia's fourth-largest economy.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive