AIO Finance Analysis

Investors were spooked by a media report that a planned bailout of US bond insurer Ambac Financial was running into snags, dealers said. Ambac and other major bond insurers have been hard hit in the financial turmoil stemming from the US housing slump and related credit squeeze. "Investor fears of a US recession have strengthened. There is even a growing view that the US economy has already entered into a recession," said Ryohei Muramatsu of Commerzbank in Tokyo.

Markets expect the Fed to cut its federal funds rate at a March 18 meeting. The central bank has already slashed borrowing costs by 2.25 percentage points since September in a bid to shore up flagging economic growth.

Asian stocks plunged Monday with Tokyo ending down almost 4.5 percent, battered by a slumping dollar and fears that the US economy is slipping into recession, dealers said.

Investors dumped shares after heavy losses on stock markets in the United States and Europe last week following signs that the fallout from the US credit crisis was far from over.

Hong Kong was down 3.1 percent in late trade, Seoul gave up 2.3 percent as Singapore and Sydney both shed about 3.0 percent.

"Wall Street's plunge amid a raft of bad news hit sentiment in a big way... raising fears about the possibility of the market slipping into a downward spiral again," said Kim Min-Sung, analyst at Bookook Securities in Seoul. Tokyo was the hardest hit, with the Nikkei-225 tumbling 4.49 percent to end below the key 13,000 points level for the first time in over a month.

The results were "a reminder to investors that subprime woes have not gone away," CIMB-GK Research analyst Song Seng Wun wrote in a note to clients from Singapore. "The mortgage meltdown and credit crisis are likely to have a substantial negative impact on the US as well as global economic growth in the coming months," Song added.

Source: Yahoo! News