TOKYO - The historic carnage on Wall Street reverberated across Asia Tuesday, with stock markets in the region falling sharply after U.S. lawmakers rejected a $700 billion bank rescue plan aimed at stabilizing the U.S. financial system.
All major stock markets in the region succumbed to heightened fears of a broader global financial crisis, though they managed to trim some losses during afternoon trading.
Japan's benchmark Nikkei 225 index slumped 4.1 percent to 11,399.46, with popular stocks like Sony Corp. down 6.5 percent, and Toyota Motor Corp. down 4.6 percent.
In Hong Kong, the Hang Seng index fell 2.4 percent after earlier plunging more than 5 percent. In Australia, the S&P/ASX-200 index closed down 2.4 percent after falling as much as 5.3 percent.
"With the bailout plan being rejected, difficulties faced by many U.S. financial institutions are yet to be resolved," said Castor Pang, an analyst at Sun Hung Kai Financial. "The downward movement will continue for a period of time in the U.S., and Hong Kong markets will inevitably follow suit."
Investors were stunned by the U.S. House of Representatives' rejection Monday of a $700 billion emergency bailout package that would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions.
With elections in November, many lawmakers were unwilling to take the political risk of supporting a measure that many American voters see as an undeserved bailout for rich, reckless investment bankers.
The Dow Jones industrial average plunged 777 points, its biggest ever single-day drop, or nearly 7 percent, to 10,365.45, its lowest close in nearly three years.
"This is a bad development," Australian Prime Minister Kevin Rudd told reporters in Australia's capital, Canberra. He urged U.S. lawmakers to urgently return to negotiations to come up with a deal that will prevent further infection of world markets.
Japanese Prime Minister Taro Aso urged the country's financial officials to closely monitor the situation and take appropriate measures to protect the world's No. 2 economy, according to Kyodo News agency.
"We have to respond appropriately in order not to affect the Japanese economy and to prevent the financial system from falling apart," Aso was quoted as saying.
Japan's banks have relatively little exposure to the bad mortgages at the core of the global credit crisis, but investors are worried that a slowdown in the U.S. and global economy will hurt demand for exports.
The key index in Taiwan's stock market, closed Monday for a typhoon, fell 3.6 percent even after Vice Premier Paul Chiu urged investors to have confidence in the island's export-driven economy and its financial markets.
Elsewhere, markets in South Korea and India dropped sharply but were down about 0.5 percent as trading progressed.
The chaos sapped the dollar overnight. The greenback was trading at 104.32 yen Tuesday afternoon in Asia from above 106 yen a day earlier, adding further pressure on major Japanese exporters.