Asian Stocks Sell Off

Asian stocks finished lower Wednesday after recovering some of their steep early losses.

The major indexes dropped 1.7% in Tokyo and 1.5% in Hong Kong after earlier losing more than 2%. South Korea bounced back to finish down just 0.2% after earlier plunging more than 3%.

Stocks were mixed in Europe, posting modest gains in the U.K. and France and dropping fractionally in Germany.

The action came a day after U.S. stocks dropped more than 2% on worries that State Street (STT Quote - Cramer on STT - Stock Picks) and other big custodial banks could be holding lots of bad paper tied to subprime loans. Tuesday also saw renewed selling in the brokerage stocks, particularly Lehman Brothers (LEH Quote - Cramer on LEH - Stock Picks), after a brokerage downgrade cited the prospect of tough third-quarter earnings.