Asian Stocks Tumble on US Financial woes

Asian stock markets fell sharply Tuesday as investor confidence in the U.S. financial system eroded even further despite a government-backed plan to help beleaguered mortgage financiers Fannie May and Freddie Mac.

Every major index suffered declines, with Hong Kong's Hang Seng Index dropping more than 4 percent and Taiwan's benchmark losing over 4.5 percent.

In Tokyo, the Nikkei 225 index dropped nearly 2 percent to close at 12,754.56.

While losses spread across most sectors, banks were hit particularly hard as investors worried that trouble in the U.S. financial markets would spillover to Asia. Japanese traders, for instance, were rattled by a local business newspaper report that the country's top three banks hold a combined 4.7 trillion yen ($44 billion) in Fannie May and Freddie Mac debt.

Those two government-chartered companies received a boost Sunday when the U.S. central bank and Treasury Department promised to step in with short-term funding and other aid should mortgage losses mount. Together, the companies hold or back about half the outstanding mortgages in the United States.

A sell-off of regional banks overnight on Wall Street, as well as fears that other American banks might face difficulties ahead, only added to the unease. On Monday, the Dow Jones industrial average fell 45.35, or 0.41 percent, to 11,055.19 after spiking nearly 140 points in early trading.

"Investors are quite concerned we could be heading toward a meltdown in the equities market if there's no rebuilding in confidence, especially in the U.S.," said Alex Tang, head of research at Core Pacific-Yamaichi in Hong Kong.

In Japan, banking giant Mizuho Financial Group Inc.'s shares dipped 3.5 percent in afternoon trade and Mitsubishi UFJ Financial Group Inc. was down nearly 4 percent.

Meanwhile, China's biggest lender, ICBC, dropped almost 5.2 percent in Hong Kong trading. China Construction Bank was off 5.4 percent.

China's most-watched index in Shanghai was off 3.4 percent. Elsewhere, South Korea's benchmark slid 3.2 percent, India's Sensex lost 3.7 percent and Australia's main index slipped 2.1 percent.

In currency trading, the dollar declined against the yen to 105.59. The greenback was flat against the euro.