The Hang Seng Index posted its biggest single-day loss in a month, as investors fretted about the recurring subprime credit crisis in the United States and its impact on regional banks and other financials.
"It's a very bad day for financial markets across Asia. What's happening to Fannie Mae and Freddie Mac is a clear indication of more troubles ahead in the mortgage market. What the U.S. Treasury is doing smacks of political desperation rather than genuine concern for the financial markets," said Benjamin Collett, head of hedge fund sales trading at Daiwa Securities SMBC Co. in Hong Kong.
The U.S. Treasury also announced plans to rescue Fannie Mae and Freddie Mac, further fuelling fears that the subprime crisis may have intensified.
While Chinese banks are sound and have very little exposure to subprime, the market is trading very short term and the selloff in the financial sector is just an extension of the overall market moves." Collet said.
The Hang Seng Index lost 3.8 percent, closing at the lowest since March 20.