The dollar had, however, lost some ground against the yen by Tokyo midday after the topside was capped near seven-year lows above 138 yen overnight. But dealers said the US currency was well-supported due to bargain-hunting demand from Japanese institutional investors and importers.

The dollar's overnight fall came after US treasury secretary Robert Rubin said on Tuesday he has shared the concern about a weaker yen expressed by Japanese officials, and was somewhat surprised by a magazine report to thecontrary.

At 0430 GMT the dollar was at 137.84/94 yen, compared with New York's 137.88/98 on Tuesday. Hong Kong shares led the rout as the Hang Seng index slumped around four per cent in morning trade, while Tokyo stocks fell nearly two per cent and Seoul more than three per cent.

Brokers in Tokyo said dealers who had recentlybuilt long positions on expectations of a recovery in the Japanese stock market unloaded their holdings. "Dealers who had expected the Nikkei to recover to 16,000 had accumulated longs in futures, and they were discouraged by the fall in US stocks and the weaker yen," said Tsuyoshi Segawa, general manager at New Japan Securities Co Ltd. The Nikkei 225 average was 1.68 per cent or 267.29 points lower at 15,617.53 by 0500 GMT. The last time the average traded above the 16,000 level was on April 24.

On Tuesday, the Dow Jones Industrials slid 150.71 points, or 1.65 per cent, to close at 8,963.73 on worries over the earnings of US multinational companies. Hong Kong stocks fell from the opening on worries about the local economy after chief executive Tung Chee Hwa warned that the territory might post negative economic growth, brokers said.

The blue chip Hang Seng Index saw early falls accelerate and was down 3.85 per cent at 9,117.12 points by the end of the morning session. "The growth of (the) economy willfall substantially and indeed may even be negative," Tung said on Tuesday.

His comments came ahead of Friday's release of Hong Kong's first quarter economic report.

"It is just one bit of bad news after another," said Kent Rossiter, institutional sales manager at Nikko Securities.

"It is just a matter of time before the market tests 9,000 points."One analyst noted that it was unclear whether Tung was hinting at negative first quarter gross domestic product growth or negative full-year growth. Shares in Seoul remained blighted by worries about nationwide strikes.

More than 80,000 South Korean Union workers at Hyundai Motor Co and other work sites downed tools from 1 pm (0400 GMT) on Wednesday as scheduled, a union leader said.