Asian Stocks End Lower; Europe Declines

Updated from 3:54 a.m. EST

By Jeremiah Marquez

HONG KONG -- Asian stock markets tumbled Tuesday, with Hong Kong's index down nearly 3%, after relentless fears about the financial system and world economy drove Wall Street to its worst finish in more than a decade.

Every major market shuddered from losses across a range of sectors, from banks to technology firms, exporters and commodities, wiping out solid gains from the previous day.

Stocks in London fell 1%, while the DAX in Frankfurt tumbled 2.2%. Paris shares declined 1.4%.

Tokyo's benchmark languished near a 26-year low as news that Nomura Holdings(NMR Quote), Japan's biggest broker, will raise billions more in capital by selling shares added to worries about the financial sector.

Most Asian bourses advanced strongly Monday on reports the U.S. government may take a greater stake in tottering financial giant Citigroup(C Quote).

But concerns that Citigroup and other banks will keep suffering severe losses flared amid pessimism about a quick economic recovery and doubts the government can return the reeling financial system to working order.

As the Obama administration tried to pacify fears, saying it would launch a revamped bank rescue program this week, U.S. investors hammered stocks. The Dow Jones and S&P 500 indexes plummeted to their lowest finishes since 1997.

"Investors are just selling out in disgust across the board -- disgust with the market, disgust with the financial problems," said Lorraine Tan, director of equities research at Standard & Poor's in Singapore.

"The government seems to keep throwing in money, but there doesn't seem to be any end to the declines or solutions to the problems," she said.

In Japan, the Nikkei 225 stock average lost 1.5% to 7,268.56, but traded of its lows. Hong Kong's Hang Seng finished down 2.9%, while South Korea's Kospi fell 3.2%.

Shanghai's benchmark, among the year's best performers so far, dropped 4.6% as China's central bank said the country's economic downturn could worsen and warned the risk of deflation is "quite big" amid collapsing consumer demand. The bank's report could temper expectations that China's slump might be bottoming out and a recovery might be taking shape,

Australia's stock benchmark was off 0.6%.

U.S. investors on Monday seemed unconvinced after regulators promised to ensure the viability of banks by providing capital and said they would start conducting "stress tests" on Wednesday to gauge the health of financial firms.

Amid the assurances, however, came more reports of financial gloom.

Struggling insurer American International Group (AIG Quote) said it's evaluating "potential new alternatives" to tackle its financial problems amid reports it will soon announce a $60 billion loss and ask the government for more aid.

After the markets closed Monday, JPMorgan Chase (JPM Quote) said it was slashing its quarterly dividend to preserve capital in case economic conditions drastically worsen.

The Dow Jones Industrial Average plunged 250.89, or 3.4%, to 7,114.78. It last closed this low on May 7, 1997 when it finished at 7,085.65. The Dow hasn't traded below the 7,000 mark since October 1997.

While the S&P 500 managed to close above its Nov. 21 trading low, considered a key threshold among investors, it still took a beating. The benchmark fell 26.72, or 3.5%, to 743.33. It was the lowest close since April 11, 1997.

Stock futures suggested a mixed opening for Wall Street on Tuesday.

Oil prices fell 5 cents to $38.39 a barrel in trading on the New York Mercantile Exchange. The contract lost 4%, or $1.59, to settle at $38.44 overnight.