Asia-Pacific stocks fell the most in a year on Thursday as growing losses on global credit markets led investors to dump higher risk stocks.
South Korea's Kospi index was among the region's biggest losers, falling 6.9 per cent, and indices in South-East Asia were also taking a hit, down 6.6 per cent in Jakarta and 3.6 per cent in Singapore.
In Tokyo, the Nikkei 225 Stock Average plunged 1.99 per cent to close at 16,148.49 while the broader Topix index of all first-section issues was also down 1.67 per cent to 1,567.46.
Financial services companies, such as Japan's Mizuho Financial Group Inc and South Korea's Woori Finance Holdings Co, were among the biggest decliners in the region as losses linked to sub prime, or higher risk, home loans in the US have set off market jitters around the world.
Worries about a global credit crunch and a global economic slowdown triggered panic selling in Seoul, where the Kospi closed down 125.91 points at 1,691.98, for its steepest daily percentage fall in five years and the biggest points drop ever.
Declining issues outnumbered advancers 805 to 24. Contributing to the slide were two straight days of more than one per cent losses on Wall Street and a public holiday that closed the Seoul market Wednesday, when stock markets across Asia also plunged.
Alarmed by recent stock drops, the office of South Korean President Roh Moo Hyun urged investors not to overreact to the global financial market instability caused by the US sub prime mortgage crisis, news reports said.
"South Korea's stock market is overly sensitive to the sub prime mortgage financial crisis," a presidential spokesman was quoted as saying by the national Yonhap news agency.
"The fundamentals of the South Korean economy are solid, and the impact from the sub prime mortgages will be limited," he said.
Hong Kong's Hang Seng index fell 3.3 per cent, trading at 20,672.39, while Taiwan's Taiex index closed down 4.56 per cent at 8,201.37.
In Indonesia, the Jakarta Composite Index was down 6.64 per cent to 1,894.29, Singapore's Straits Times Index slid 3.62 per cent to 3,154.85 and the Stock Exchange of Thailand index fell 3.78 per cent to 744.70.
The Philippines Stock Exchange and its investors' confidence also took a punch from the US sub prime mortgage woes with its 29-share composite index falling six per cent to 2,942.31, its lowest level in seven months, after losing four percent of its value on Wednesday.
In Australia, shares were down as much as five per cent before recovering when bargain hunters began buying up stocks again.
The All Ordinaries index closed down 1.5 per cent at 5,712.
Australian shares have lost 11.5 per cent of their value during the past 20 trading days, and analysts said a long-awaited correction was under way.
"The fallout from the US is significant," Treasurer Peter Costello said. "It's not only affecting global equity markets, but it's affecting credit markets, and it's leading to a re-pricing of risk. People who are raising money for lower credit risk will find the cost of that money higher."
John Sevio, head of equities at Perpetual Investments, said there had been less pain in Australia than elsewhere in the region. The stock market, which reached a record high July 24 and on Wednesday closed at its lowest level since March 14, was still up on its 2006 level.
"The last four years have collectively been the best four years ever in the history of the Australian stock market, and what goes up eventually comes down to a certain level, and that's what happened," Sevio said.
"There's been a lot of leverage and a lot of tricky financial engineering that's been allowed to build up over the last few years as people have got hungrier and greedier for returns," he said. "What this period is doing is shaking a bit of that out."
In China, the CSI 300 Index, which tracks shares on both the mainland's stock markets, fell 1.6 per cent to 4,721.94. The Shanghai Composite Index, which had been trading stably in the previous days, was down 2.14 per cent at 4,765.45 and the Shanzhen Composite Index fell 0.62 per cent to 1,317.90.
The New Zealand stock market fell 1.1 per cent on Thursday in what analysts considered a manageable trend with no need to panic.
The benchmark NZX-50 Index, which dropped to its lowest level of the year a day earlier, continued sliding and by the end of trading dipped below the 4,000 mark on the bad news from Wall Street.
Decliners swamped gainers 109 to 27 rose, but the New Zealand Stock Exchange's chief executive Mark Weldon urged caution.
"Let's put it in perspective. Markets have fallen a little bit in the last couple of weeks - in the last five years they're up over 100 per cent," he said.
"Investors globally just want to have their money in their back pocket where they can see it and money is going home very quickly at the moment," economist Nick Tuffley said.