Asian markets closed mostly lower Thursday and safe haven assets such as government debt gained after the U.S. Senate's approval of a massive bank bailout plan failed to dispel the deepening worries about the global economy. Japan closed 1.9 percent lower while South Korea shed 1.4 percent.
Doubts about whether the U.S. House of Representativeswill now approve the revised $700 billion rescue plan for the financial system also weighed, after their unexpected rejection of an initial package on Monday sent global markets reeling.
Investors are also bracing for comments on the financial crisis from the European Central Bank, which meets later in the day amid expectations it will keep interest rates on hold.
Japanese and South Korean stocks accelerated their losses after the approval, helping the MSCI index of Asia-Pacific stocks outside Japan slide, reversing a modest gain immediately before the U.S. Senate vote.
The dollar, which had hovered near a one-year high against a basket of currencies earlier in the day, also cut part of its gains against both the yen and euro , with a key dollar index up 0.17 percent. Gold prices rose while crude oil rose, as investors favored safer investments due to the uncertain outlook.
The Nikkei 225 Average finished down 1.9 percent to hit a three-year low, despite passage of the U.S. financial bailout bill by the U.S. Senate, with worries about its fate in the House of Representatives and concern about the global economy overpowering relief. Growing worries over the U.S. economy sent Toyota Motor and other carmakers lower, dragging the Nikkei down. High tech firms such as Advantest also slipped.
South Korea's KOSPI shed 1.4 percent as mounting economic worries outweighed relief over the approval of a U.S. financial rescue plan, sending key exporters and industrial issues down. Banks also fell after Moody's Investor Service changed the outlook on the financial strength of South Korea's big four banks to negative from stable on Wednesday.
Australian shares finished 0.7 percent lower, with investors now looking ahead to a vote in the House of Representatives on the matter. Fortescue Metals Group, an iron ore producer, dropped sharply after JP Morgan cut its price target by about 48 percent saying the global credit crunch has made it difficult for Fortescue to raise the A$7 billion required to lift output to 160 million tons per annum.
Hong Kong shares gained 1.1 percent in skittish trade as sliding local property stocks and Hang Seng Bank's 8.9 percent plunge nearly overshadowed the U.S. Senate's green light for a financial sector bailout package. But Chinese property stocks bucked the trend, soaring after state media reported that regional governments were propping up the ailing sector with measures including subsidies for home buyers.
Singapore's Straits Times Index closed 0.2 percent higher, reversing gains of as much as 1.5 percent, with blue chips slipping across the board.
Markets in China are closed for the Golden week holidays and will reopen next Monday.