Fears over the global banking market dragged down shares across Asia overnight, sending Hong Kong’s benchmark Hang Seng below the critical 12,000 mark as Japan's Nikkei briefly headed towards a 26-year low.

Asia dealing floors began the day in full-blown selling mode, responding to the fearsome overnight drop on Wall Street and the record $62 billion quarterly losses revealed by AIG, which left stock markets in the UK, Europe and America nursing heavy losses.

Japan's finished its day down 50.43 points to 7,229.72, after sliding as low as 7,088.47 in the morning, a level not seen since the 26-year low of 6,994.90 recorded in late October. The broader Topix slipped 1.1 per cent to 726.80, its lowest close since December 1983.

But even with the Nikkei poised to slip below 26-year lows, brokers reported some buying pressure throughout the day as investors stock-picked their way back into Japan’s battered export sector.

The afternoon session saw the morning’s losses all but wiped out before confidence collapsed once more and the Nikkei closed 0.7 per cent lower on the day.

In Hong Kong, the Hang Seng began the day in full-fledged retreat, with the damage chiefly coming from the 17.8 per cent collapse in HSBC’s locally listed shares as investors registered their fears over the ultimate effectiveness of the bank’s hefty $17.7 billion rights issue plan.

The bank’s huge weighting in the Hang Seng pulled the index down to a session low of 11,849 points.

But the day’s losses were hauled back from catastrophe by a bout of strong buying of Hong Kong listed Chinese stocks. China Mobile, China Life and other major players in the China Enterprises index climbed higher as investors licked their lips at the prospects of yet more central government stimulus measures from Beijing being announced in coming days.

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