Hong Kong shares were trading 2.57 per cent weaker in afternoon trade even as local interest rates eased, while Malaysian stocks had slumped over six per cent. European share markets opened with big losses, with German shares down more than three per cent in early electronic trading and London's bluechip FTSE 100 index dropping more than two per cent at the outset.

French shares started 2.4 per cent lower. ``At this pointit is not a science, people are having to think about the impact of what is effectively an unexpected event,'' said one senior equity salesman. The global flight into safe haven bonds saw German bunds and British government bonds rise sharply, following an overnight jump in US treasuries. The dollar, battered by the Dow's fall, recouped some of its losses against the mark after falling to a nine-month low overnight, and it edged up against the yen. Wall Street was blamed for some of the weakness in Hong Kong although the absence of government buying following two weeks of strong intervention also played a role. Asian currencies were generally firmer, assisted by weakness in the US dollar as investors bailed out of US stocks. That helped the yen, which gave the rest of Asia's embattled currencies a welcome fillip. The outlook, however, remained profoundly uncertain. ``Europe and London will probably react negatively given what happened in the United States happened after Europe closed,'' said Peter Perkins,strategist at Daiwa Research. The Dow was expected to stabilise and a kneejerk rise of about one per cent was possible, he said. Weakness in the US dollar as investors sold stocks helped dollar/yen to firm to about 138.35 at 0820 GMT. Short-covering allowed the dollar to pare some of its early losses, however, easing concerns about further declines in US stocks as S&P 500 futures surged on Globex.

Continued uncertainty in Russia also kept the US dollar on the defensive following the State Duma's rejection of Viktor Chernomyrdin as the PM, prolonging that country's political crisis. Perkins believed the dollar could also weaken against the yen due to intervention ahead of September meetings between Japanese and US finance officials. Asian currencies were generally firm as the dollar weakened and some domestic issues offered support. The Malaysian ringgit gained nearly five per cent as investors ditched short positions in anticipation of exchange controls, which were indeed announced by the government onTuesday morning. Hong Kong was hit by a downgrade of its local currency ratings by Standard & Poor's, who said Hong Kong's financial flexibility had been compromised by the regional recession and large government purchases in the local equity and futures markets. Interest rates eased regardless as the Hong Kong Monetary Authority injected liquidity, bringing the overnight rate down to a bid of 11 per cent from 17.50 per cent a the open. The benchmark three-month interbank rate fell to 13.50 per cent from 15 per cent at Monday's close. Perkins said the outlook in Asia remained profoundly bleak. ``There is just a growing crisis of confidence in the global currency system and the global banking and financial system, and until some greater degree of confidence is restored in Asian markets they will remain under pressure, he added.