“There’s something approaching panic in the market,” Holger Schmieding, the chief European economist at Bank of America in London, said. “There’s been a reassessment in the market of the US economic outlook, with most people now thinking that there will be a recession,” and investors are starting to reconsider the idea that the rest of the world “will remain aloof from US problems.”

The selling began in Sydney, with Australian stocks falling nearly 3 per cent for an 11th consecutive decline. Major markets in Asia followed suit, with the benchmark Nikkei 225-stock average in Tokyo falling 3.9 per cent, the Hang Seng in Hong Kong falling 5.5 per cent and the benchmark mainland Chinese index falling more than 5 per cent.

European shares were on track for their biggest decline in more than four and a half years as US recession fears rattled investors. At the close, Dow Jones Euro Stoxx 50 was down 7.3 per cent. The CAC 40 index in Paris was down 6.8 per cent, having fallen more than 7 per cent at one point. The Dax 30 in Frankfurt was down 7.1 per cent, and the FTSE 100 in London was down 5.5 per cent.

Stocks followed suit when markets opened in the western hemisphere. Canadian stocks were down 4.5 per cent at midday, and a key market index in Brazil was off 6.6 per cent.

US markets are closed on Monday in observance of Martin Luther King’s birthday. But trading in stock index futures on Monday, while light and not always a reliable indicator, pointed to a substantial decline on Wall Street. Futures in the Dow Jones industrial average were down 520 points, or more than 4 per cent.

Stocks received no lift on Friday despite an announcement that the Bush administration would seek a stimulus package of as much as $145 billion.

Market participants said that meant investors were convinced that an American recession is looming, and economists and strategists said the effect would span the globe. No matter how many bridges, roads and power plants China builds, or new cars India sells, a downturn in the US will batter Asian economies, they said.

Investors in Asia have been in a state of denial about the possibility of a recession in the US, said Adrian Mowat, chief strategist for JPMorgan in Asia. But now, he said, “there’s no debate about it.” Instead, he said investors were asking “how long and how deep” the recession might be.

In recent months, some emerging market investors have preached the idea that fast-growing areas like most of Asia have “decoupled” from developed markets, meaning economies of the two groups no longer move in tandem. The investing adage “When the US sneezes, Asia catches a cold” no longer applies, the proponents of decoupling argue. But a recent slump in emerging markets, capped by Monday’s slide, means investor sentiment is changing.

Mowat said it did not matter whether global markets were separated by geography or asset class, because “we trade together in corrections.” Deborah Schuller, a regional credit officer for Moody’s Investor Service in Asia, said, “If the US consumer quits buying things, it is going to hurt” Asian economies.

Most rated corporations in Asia will be able to withstand nine months of US recession, but if hard times in America stretched to 12 months or more, there could be serious problems, she said. Worries about the Chinese economy are also giving investors in Asia heartburn.

The country’s private property market is in the midst of a shakeout, and scores of small developers have gone out of business. Meanwhile, fears of inflation have been looming for months. Shanghai’s composite index closed down 5.1 per cent at 4,914.44. The Hang Seng’s 5.5 per cent fall was the biggest fall since September 11, 2001. The Hong Kong index fell more than 5 per cent last Wednesday.

The decline in Japanese stocks took the market to the lowest levels in more than two years on concerns that a US recession could be accompanied by a local one. The Nikkei is now down more than 13 per cent in January.

The Japanese finance ministry said on Monday that growth was slowing in five of Japan’s economic regions, which have been hit by stagnant housing investment and the poor employment.

The Bombay Stock Exchange’s Sensex index plummeted 7.4 per cent and suffered its biggest-ever point loss of 1,408 to close at 17,605.35. Hardest hit were some of the most valued Indian companies, including Reliance Communications, Tata Steel and Reliance Industries.

There may be more downturns in store for Asia, particularly as banks report the fallout from their investments in the US mortgage market. Companies “have not announced their year-end numbers yet,” Schullersaid, and if they are holding subprime assets, they may need to write-off their value, she said. “They are going to be taking these 25 to 30 per cent haircuts we’re seeing on Wall Street,” she said. “I think it is going to shock people.”

Ajay Bagga CEO, Lotus India AMC

US slowdown and corrections were the triggers. High IPO collections sucked liquidity. The final assault came from high open interest positions. Corrections triggered margin calls leading to loss bookings. Investors should abstain from margin play and revisit equity asset allocation. Look for domestic stories insulated from global factors.

Puneet Nanda CIO, ICICI Prudential Life Ins.

One of the reasons for the crash was US recession. There has been a lot of selling by FIIs. The two big IPOs saw a lot of money being locked in to the market. Moving forward, I feel global worries persist and markets may remain volatile. This is an opportunity to buy at better valuations

A Chakraborty President (equity), Religare

Initiated with liquidity suck by the public offer of Reliance Power and profit booking by hedge funds and FIIs, the fall was triggered by F&O margin calls and simultaneous loss bookings. This is the right time for investors to get in some stocks as the market is hitting bottom

Pankaj Desai ED, Kotak Life Insurance

Globally, markets are looking down and FIIs have been selling. In Indian markets, valuations were high and the leveraged positions of investors came into play. In terms of opportunity, I think this is the best time for investors to enter. As for life insurance industry, we take a long-term approach

Sanjay Sinha CIO, SBI Funds Management

Liquidity is the primary reason for the correction in the market. US recession, high oversubscription of some IPOs in the market and margin calls, have led to the fall. Going ahead, valuation and events are looking favourable for investors, who should now look to invest in the market

Anil Kaul Head (research), ICICI Direct

It is a result of several factors - margin funding call, liquidity shortage and global worries. But retail investors with long-term vision should be ready to take these corrections. The fall has opened opportunity that the investors should look to capitalise with the help of a good advisor

Ketan Karani VP, Research, Kotak Securities

In the markets today, there was lot of euphoria that got built in the small and mid cap segment which is getting corrected. F&O exposure has gone up at around Rs 1,30,000 crore. Opportunities for investors have opened up in banking, capital goods and real estate