However, Kuala Lumpur stocks bounced back 10 percent after a two per cent dip on Anwar's sacking on Wednesday, a day after new foreign exchange curbs at odds with Anwar's views took effect. Traders said some investors who had sold shares on expectations of further losses in the market piled back in on Thursday to cover short positions.

Singapore and Taiwan were dampened by the Anwar news, falling between two and three per cent each. Tokyo stocks ended lower amid deepening worries over the bleak economic environment weighing on Japanese corporations, traders said.

The benchmark Nikkei 225 average ended down 115.38 points or 0.80 per cent at 14,261.24. The yen strengthened against the dollar, however, on worries about the US economy and stock market. The yen was at 135.57/67 against the dollar at 0810 GMT.

Asharp cut in Hitachi Ltd's earnings forecast jarred the stock market, and news that Toa Steel Co Ltd would make a decision on applying for liquidation on Friday hurt sentiment further. ``The news showed that Japanese companies as a whole are under heavy pressure, and this hurts investor confidence a lot," said Masaaki Higashida, deputy general manager at Nomura Securities Co Ltd.

Hong Kong stocks fell from a morning close of 7440.31 points to 7318.59 points, down 37.08 points. "What is really propping it up is that the clearing house is having to clear unsettled positions," said Steven Thompson, Chief analyst at Nikko Research Center.

"It will have to filter out and then we will return to normal trading patterns." Malaysian shares bounced sharply higher as investors covered short positions, dealers said. "Everyone is trying to cover any positions they have," said a senior analyst at a local brokerage.

Malaysia's central Bank Negara cut its key three-month interbank rate to 8.0 percent from 9.5 percent.Earlier, the government fixed the ringgit exchange rate at 3.80 to the US dollar. Analysts said attention would now focus on possible contenders to replace Anwar, with Special Functions Minister Daim Zainuddin way out in front.

Australia's All Ordinaries fell 2.7 points or 0.11 per cent to close at 2,513.3 points. Taiwan share prices fell 3.40 per cent to 6251.38, chilled by reports of a possible darkening of the island's economic outlook and concern over Malaysia, brokers said.

"At a time when confidence is still very weak, Malaysia's currency controls easily trigger worries that foreign funds may further pull out of Asia," said Oliver Fang, institutional sales Chief at Taiwan's National Securities.

Malaysia's move stoked fears other countries would turn away from free market policies that Prime Minister Mahathir Mohamad said had been discredited by financial crises gripping Asia and, more recently, Russia. Singapore investors fearful of possible contagion from neighbouring Kuala Lumpur pulled theStraits Times index down 2.06 percent to 810.76 points.

Brokers said sentiment was also weighed down by profit-taking on Wall Street overnight, which chipped almost 0.6 per cent off the Dow Jones Industrial average to close at 7,782.37. Jakarta stocks were up more than one per cent on gains in some blue chips, dealers said.