(Agencies)
Updated: 2008-02-06 14:01

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

A pedestrian watches an electric market board in Tokyo, Wednesday, Feb. 6, 2008. [Agencies]

In Hong Kong, the benchmark index plunged more than 6 percent in morning trading, while Japan's Nikkei 225 index sank more than 4 percent.

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

Economic data Tuesday showing the US service sector shrank last month for the first time since March 2003 wiped out nascent optimism about the American economy that had lifted global markets last week.

The news sent the Dow Jones industrial average plunging 370 points, or 2.93 percent, its largest one-day percentage drop since Feb. 27, 2007.

Asian markets have dropped sharply from the beginning of the year amid worries about a US - and global - slowdown. Many stocks rebounded some over the last two weeks after the US Federal Reserve made two big interest rate cuts to shore up the weakening American economy.

But pessimism returned after the Institute for Supply Management reported Tuesday that its index of activity in the US service sector, which accounts for about two-thirds of the economy there, dropped below 50, indicating contraction. It was the first time the service sector reading has contracted since March 2003.

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

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

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

The financial world, already battered by mounting bad assets from defaults on risky US mortgages, was dealt another blow last month when major French bank Societe Generale said late last month that it had lost 4.8 billion euros ($7.1 billion) in cleaning up unauthorized transactions by a rogue trader.

In Tokyo on Wednesday, the Nikkei 225 index was down 4.13 percent at 13,178.2 points at the midday break, while Hong Kong's Hang Seng index tumbled as much as 6.1 percent to 23,283.61 in morning trading.

Australia's key index fell nearly 3 percent, while Thailand's market was down 2.4 percent.