Hong Kong followed the example of the Dow, which had dropped almost 1.4 percent after inflation fears sent the long bond yields to a 2- year high.The Hang Seng Index fell 3.25 percent to 15,275.34, spookedby indications in rising long bonds of an interest rate hike.

Traders warned that the market could have further to fall.

"The market lacked momentum and it could test the low of15,000 points in the near term," said Terry Cheung, sales director at Core Pacific-Yamaichi Securities.

Japan's Nikkei was also off, closing down 1.56 percent at18,897.75 as investors locked in profits when most hi-tech stocks failed to follow the Nasdaq up as expected.

The Nasdaq rose 1.64 percent on Tuesday, but traders in Tokyo expressed fears it might not be able to sustain its rise in the face of the Dow's problems.

After the regular U.S. Markets close, tech bellwether Microsoft reported fiscal second quarter earnings above the consensus estimates, but gave a restrained view of the future.

In Japan, a report from the central bank said the economy has recently turned towards improvement, but the bank's assessment of domestic conditions remained unchanged, and gave the market little direction.

The dollar rose late in the day against the yen, trading at105.94/6.04 at 0955 GMT, but gains were capped by Japanese exporter offers, and traders said they expected limited action before the G7 meeting this weekend.

Banking and electronics lead fall
Korea's Kospi reversed the gains of last week, closing down4.36 percent at 938.78 after futures-linked program selling hit blue-chips.

"The narrowing gap between futures and the spot market and an overnight fall in the Standard and Poor's 500 March futures index triggered programme sales by institutional investors," said Hyun Shin, a fund manager at Daehan Investment Co.

Taiwan and Singapore were lower, both led down by the banking and electronics sectors.

Taiwan opened higher on the back of the Nasdaq's rise, but its passage through the 9,300 level triggered profit taking and the market closed down 1.07 percent at 9,151.44.

Brokers said they expected the market to consolidate at between 8,900 and 9,300 in the near term.

Singapore fell victim to the interest rate jitters to close at 2,254.87, a decline of 2.8 percent on the day and its firth consecutive drop.

Australia's All Ordinaries ended the day 1.5 percent lower at 3,105.4, another victim of weakness in New York and London. Traders said they were confident in resource stocks, given that there was little sign of a slow-down in world growth.

Kuala Lumpur ended down 1.71 percent at 933.38, another victim of Wall Street's overnight loss and profit-taking after last week's sharp rise.Rumours of religious riots hit the market in Jakarta,driving it down 4.33 percent to 655.995 at the close. A police spokesman denied the rumours, but the market remained unsettled.

Subcontinent bucks Asia trend
Subcontinental markets bucked the trend. Karachi was up2.27 percent at 1,697.73 at 1007 GMT, but traders warned profit-taking would limit any large rise.

Bombay was up in volatile trading as speculators restricted positions after mixed corporate results. The Index stood at 5,483.66 at 0959 GMT, a fall of 0.35 percent. Thailand recovered from slight losses early in the day to end up 0.45 percent at 486.33 after banks caught the eye of investors.

New Zealand and the Philippines were also off. New Zealand fell 0.3 percent to 2,123.80 after the central bank raised interest rates by 25 points. The Philippines fell through the 2,050 support point to close down 1.27 percent at 2,048.53.Singapore's share prices closed 2.8 per cent lower, dragged down by Wall Street's fall overnight and institutional investors switching funds into other regional markets. The Straits Times Index fell 64.90 points to 2,254.87, making five consecutive days of falls totalling an overall loss of 7.1 percent. The market continued to fall because of concerns over valuations, with foreign brokerages downgrading their ratings on Singapore to underweight from overweight, said a dealer with a European brokerage.