Asian stocks sink after Dow's plunge

BANGKOK, Thailand - Asian markets plunged Wednesday after a steep drop on Wall Street overnight fanned investors' fears the U.S. economy was sliding into a recession that could sap demand for Asian exports.

In Hong Kong, the benchmark Hang Seng index plunged 1,339.24 points, or 5.4 percent, to close the half-day session at 23,469.46. Japan's Nikkei 225 index was down 3.8 percent in afternoon trading.

"It's unbridled pessimism," said Francis Lun, general manager at Fulbright Securities Ltd. in Hong Kong. "Everyone is concentrating on a U.S. recession, but Europe is also looking bad.... We are in for a bear market now."

Investors were unnerved by economic data Tuesday showing the U.S. service sector shrank last month for the first time since March 2003. That seemed to wipe out some nascent optimism about the American economy after the U.S. Federal Reserve's two big rate cuts late last month, which gave many markets a lift.

Pessimism returned when the Institute for Supply Management reported that its December index of activity in the U.S. service sector, which accounts for about two-thirds of the economy, dropped below 50, indicating contraction. That sent the Dow Jones industrial average plunging 2.93 percent, its largest one-day percentage drop since Feb. 27, 2007.

European markets also sank Tuesday in reaction to the news, with the U.K.'s FTSE 100 Index sliding 2.6 percent and France's CAC-40 Index falling 4 percent.

Global financial markets have turbulent since the start of the year, mostly tumbling amid worries about a U.S. — and worldwide — slowdown and massive losses racked up by banks that made bad bets on securities backed by risky mortgages.

Asian investors appeared increasingly anxious about a slump in Europe, another vital export market.

"There's a real probability that both the U.S. and Europe will go into recession at the same time," said Lun. "It's a financial mess on the two continents with the subprime crisis and the SocGen debacle."

The financial industry, already reeling from losses linked to the credit crisis, was dealt another blow last month when major French bank Societe Generale said it had lost about $7.1 billion in cleaning up unauthorized transactions by a rogue trader.

Elsewhere in the Asia-Pacific, Australia's key index fell 3.2 percent, while India's Sensex index was down 2.5 percent. Thailand's market slid 2.4 percent.

Some traders said Wednesday's decline in Hong Kong was overdone and largely driven by investors keen to avoid risky exposure during the long Lunar New Year holidays.

Markets in Hong Kong and Singapore were closed Wednesday afternoon and will remain shut Thursday and Friday. Markets in China, South Korea and Taiwan were closed Wednesday through Friday for the holidays.

U.S. stock index futures were down modestly, suggesting that Wall Street was poised for further declines. Dow futures were down 22 points, or 0.2 percent, to 12,298, while S&P 500 futures were down 1.2 points, or 0.1 percent, to 1,342.

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