Hong Kong stocks fell 8.6 per cent and Tokyo lost more than 5 per cent Tuesday while the Seoul and Mumbai exchanges suspended trading amid lingering fears about US economic woes.

Trading was halted in Indian and South Korean markets after dramatic falls on opening.

Hong Kong's Hang Seng index continued its downward spiral along with the rest of Asia, dropping another 2,061 points, or 8.6 per cent, to close a roller coaster day of trading at 21,757. Turnover was 155.6 billion Hong Kong dollars (19.9 billion US dollars).

At one point in the afternoon's trading, the index managed to scrape back some of its morning losses by 3 per cent, only to drop back down in the latter part of the afternoon.

The massive loss follows heavy falls on the two previous days when the index dropped more than 5 per cent each day.

The benchmark index has slumped more than 30 per cent since reaching a record high of over 31,000 on October 30, 2007.

Analysts said the Hang Seng index along with other Asian markets is being driven down by fears that the United States is dragging the world into recession.

US stock markets were closed for the Martin Luther King Day on Monday, but Asian and European investors were carrying through from last week's concern on Wall Street that a fiscal stimulus proposed by President George W Bush would not be enough to stop the US economy from falling into recession.

Bush called for a package worth up to 150 billion US dollars in tax cuts and other measures, which analysts say is too little and too late.

Shares on China's two stock markets lost more than 7 per cent, as analysts blamed panic selling.

The key Shanghai Composite Index, which reflects shares traded in both local and foreign currency, lost 7.22 per cent of its value, or 354.68 points, to end at 4,559.75.

The Shanghai index posted its biggest fall for more than seven months, while the smaller Shenzhen Component Index also dropped by 7.66 per cent.

Japan's benchmark Nikkei 225 Stock Average plunged 752.89 points, or 5.65 per cent, to end at its lowest closing since September 2005 at 12,573.05.

The broader Topix index of all first-section issues also fell 73.79 points, or 5.7 per cent, to 1,219.95, which is the lowest closing figure since August 2005.

Shares nosedived on the Seoul stock exchange in tandem with sharp declines in global markets. The benchmark Kospi index fell 74.54 points, or 4.4 per cent, to close at 1,609.02. The decline followed a 3 per cent fall on the previous day.

The index closed at its lowest level since last May.

Steep losses caused the bourse operator to briefly suspend trading as the Kospi index dropped more than 5 per cent during the morning session.

India's benchmark Sensex made a recovery after crashing by more than 12 per cent early Tuesday, helped by a reassuring statement about the health of the Indian economy from senior ministers.

The 30-share Sensex, which saw trading suspended for an hour after a fall of more than 10 per cent in the morning, had plunged further to 12.48 per cent at 15,400 levels after trading was resumed.

But the market recouped the losses in the session later in the day by gaining 1,322.43 points. The indices were still in the negative territory at 16,729.94 compared to Monday's close of 17,605.35, with the Sensex shedding 4.97 per cent in the day's trade.

Similarly, the wider 50-stock S&P CNX Nifty of the National Stock Exchange and closed at 5,208.80, a decline of 5.94 per cent compared to the loss of 11.22 per cent earlier on Tuesday.

Indonesian shares fell 7.69, with the Jakarta Composite Index closing at 2,294.524, a drop of 191.355 points.

The Stock Exchange of Thailand (SET) index dropped 24.99 points, or 3.26 per cent, to end at 741.54. After falling 4.4 per cent mid-day, the Bangkok bourse rebounded slightly in afternoon trading.

Australian stocks fell 7.8 per cent, their biggest one-day fall since the Asian financial crisis in October 1997.

The All Ordinaries index gave up 408 points, or 7.8 per cent, to 5,222.

The market has fallen for 12 consecutive days - the longest losing streak in 25 years. It's down more than 20 per cent from its high point on November 1.

However, the New Zealand stock market, the first in the world to open and close every day, made a remarkable recovery after following the global nosedive by falling nearly 4 per cent in morning trading.

The benchmark index of top 50 companies recovered during the afternoon to end on 3,607, 1.1 per cent down on Monday night's close of 3,648.9.