Japan’s central bank today poured a further 2.5 trillion yen (£13 billion) into the financial market in an effort to calm panicked investors who continue to dump stock despite America’s $85 billion bailout of AIG, the insurance giant.

Today’s injection – the Bank of Japan’s sixth in one week – takes to its total fillip to 8 trillion yen since Lehman Brothers filed for bankruptcy, Merrill Lynch was rescued by Bank of America and the US Fed agreed a two-year loan to AIG.

However, Asia markets continued to plunge overnight. Japan’s Nikkei closed 1.8 per cent down while in Hong Kong, the Hang Seng plummeted, losing 1,301.5 points to close 7.3 per cent down. In Australia and Singapore stocks plunged by over 3 per cent in the morning session.

Brokers in Tokyo said that the huge rout of financial, insurance and real-estate stocks reflected a “total disbelief” on Asian dealing floors that the Federal Reserve’s bailout of AIG had staunched the flood of bad news from the US financial sector.

Customers of AIA, a subsidiary of AIG, remained unconvinced by America’s action, and policyholders lined up for a second day in Singapore to cash in their policies.

Shares across most sectors were savaged as the banking-sector crisis of confidence spiralled into more general fears of global economic trouble. Fundamentals, said one Tokyo fund manager, have become meaningless: “this is bloodletting with nothing intelligent to act as a clotting agent,” he said.

Many now believe that there is still substantial pain to come as other parts of the banking sector are restructured to face the post-Lehman world. Focus in Asia was on Morgan Stanley, with many speculating that it might become the next bank to be named in defensive merger talks.

Analysts highlighted a “disturbing” widening of the TED spread – the difference between the US treasury bill interest rate and inter-bank rates, and a prime indicator of the market’s sense of risk. The spread is now as wide as it was in 1987.

Traders at Mitsubishi Tokyo UFJ in Hong Kong pointed to those severe disruptions in the money markets as a sign of perhaps deadlier market ructions still to come. “The AIG bailout comes at a heavy cost to the credit quality of the US Federal Reserve – the lender of last resort,” said one.

Only gold and a few other precious metals appeared to survive the market hammering: its simplicity as an investment and safe-haven status has always appealed to Japanese investors, who pushed the price up to $892 per ounce as everything else crumbled.

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