Stock markets were also sucked into a `bear' vortex as news of a fresh outbreak of currency flu transcended international boundaries in the region.

The fresh wave of crisis comes almost a year after Thai baht's free float had triggered a free fall of the region's currencies. In Hong Kong, the interbank rates touched 11.5 per cent from the previous 9.6 per cent while red chips went down in Shanghai, displaying loss of confidence among the investors in the mainland China.

Absence of public funds from the market, which had previously come in to absorb the fall,further aided the decline.

The yen was driven to a low of 141.35 against the dollar, its worst rate since June 1991 minutes before Lawrence Summers, deputy chief of Federal Reserve disclosed that meeting in Paris of deputy finance ministers from the Group of Seven industrialised nations had discussed the weak yen and `are monitoring the situation'.

Dealers and observers expect the yen to fall further. ``The pace of the yen's fall will likely be quicker in the coming days,'' warned Nobukazu Fuji, analyst at Kokusai Securities.

It is an irony that the very currency, which had fueled economic growth in the south-east region is now being squarely blamed for the economic woes and an across-the-board slump. For a number of decades now, Japan has been the patriach of the region on account of its economic prowess. The country has also aided the region's economic growth.

The yen's weakness has also heated up speculation about a possible devaluation of the Chinese yuan. China has already admitted its economyis being hurt by the slump in Japan, where falling consumer demand is restraining Asian recovery and a weak yen is pressuring Beijing to devalue the yuan.

Dai Xianglong, the chief of China's central bank, has already gone on record saying that the yen's weakness will have a negative effect on the country's economy.

``The depreciation of the Japanese yen is having a very negative impact on Chinese trade and the utilization of foreign capital,'' People's Bank of China governor said.

This has further added fuel to the speculation that the country is seriously considering a devaluation of its currency to make good some of the ills affecting the Chinese economy originating in the yen's weakness. Although Dai vowed to keep the yuan stable, his remarks sent jitters among investors in the region amid warnings by analysts that at least a mild depreciation is in the works to boost Chinese exports.

The United States, on the other hand, is believed would intervene late after the Japanese authorities takethemselves to their limit. Kokusai's Fuji said the United States was unlikely to intervene in the market until Japan had done all it could to revive its domestic demand.

Tokyo has pinned its hopes on a record-sized 16.6 trillion yen (US$ 125 billion) stimulus package announced in April, although official figures to be published on Friday are widely expected to confirm the world's second largest economy has been in recession since late last year.

``The basic stance of the United States is that some measures on the foreign exchange trade will be taken after Japan has done all it can do domestically,'' he said. ``Even if the two countries share a concern (about the weak yen), the United States appears to be insisting that joint intervention will come only after Japan has fulfilled its responsibility.''

Hong Kong share prices plummeted amid concerns over the weakness of the Japanese yen and higher interbank interest rates, dealers said.

``The falls were mainly due to the weakening of the Japanese yen andthe rising interbank rates,'' said Sean Li, associate director at Amsteel Securities.

Dealers said investors went on a selling spree because of nervousness in the money markets.

The benchmark three-month Hong Kong interbank offered rate rose briefly to around 11.0-11.5 per cent from 9.57 per cent earlier. Dealers said rates moved sharply up amid deepening concerns about the impact of sustained yen weakness on the Chinese currency, particularly after comments by People's Bank of China governor Dai Xianglong on Tuesday that it could have a negative impact on the mainland's trade. In Tokyo, brokers said there were not enough buyers on the downside to absorb the selling pressure.

``Sizable buying from public funds was seen on Tuesday, but this is not the case today,'' the Kokusai Securities broker said.

In Malaysia, there were also rumours that offshore hedge funds were selling index-linked stocks after small gains late Tuesday. An institutional dealer with a local brokerage said there was "no good newsaround" and brokerages were expecting a recession this year after the economy contracted 1.8 per cent in the first quarter. In Bangkok, analysts said the weakening of the yen and mounting pressure on the Chinese currency accounted for some of the decline but that deteriorating confidence in Thailand was also responsible for the markets plunge. However, in Indonesia shares fell by only 0.7 per cent, bouncing off their lows from profit-taking in state-owned stocks after rupiah-based arbitrage in telecommunication counters, dealers said.

A local dealer said state-run stock Semen Gresik's falls led the market lower early in the session. The fall however was ameliorated by later rises in Telkom and Indosat.

In Manila, a broker said that the people are still watching China, Japan and how the G7 nations will act right now, said Erwin Tan of Securities 2000. He added "our market has performed quite well relative to the other markets, but at the end of the day, the flows will still be dictated by the othereconomies."

In Seoul, continued foreign selling of South Korean blue chips weighed on local sentiment. But the benchmark corporate bond yield was down at 16.8 percent, reflecting expectations of ample liquidity.

An analyst said the cash market gained some benefit from the liquidation of positions ahead of the expiration of June futures contracts on Thursday.