Asian markets plunge as Europe's effort on debt crisis suffers setback

Asian stock markets tumbled on Thursday, following setbacks in Europe's efforts to isolate a debt crisis as global stock markets rattled on Wednesday, when Italy's borrowing costs blew past 7 per cent.

Japan's Nikkei 225 index fell 2.1 per cent to 8,569.79 while Hong Kong's Hang Seng index plummeted 4.1 per cent to 19,189.30. South Korea's Kospi dropped 2.6 per cent to 1,858.58 and Australia's S&P ASX 200 lost 2.7 per cent to 4,230.80.

The losses in Asia tracked those in New York, where the Dow Jones industrial average fell almost 400 points, its worst decline since September 22.

Global stock markets fell sharply on Wednesday, when Italy's borrowing costs blew past 7 per cent. That was considered an important level because Greece, Portugal and Ireland required bailouts from other nations when their bond yields hit 7 per cent.

While Greece has been the focus of the debt crisis for two years, Italy has recently become of greater concern because it has the third-largest economy in Europe - and because its debt, at $2.6 trillion, is too large for other European countries to absorb.

Power-sharing talks in Greece aimed at avoiding a default on its debts broke down in chaos on Wednesday. Markets fear that a Greek default would lead to huge losses for European banks. That could cause a global lending freeze similar to what happened after the investment house Lehman Brothers fell in 2008.

The Dow finished down 389.24 points, at 11,780.94, its worst decline since September 22. The S&P 500, the broadest major stock index, closed down 3.7 per cent, or 46.82 points, at 1,229.10 - its worst day since August 18. The NASDAQ composite index lost 3.9 per cent at 2,621.65.

European stock markets fell sharply, too. The main stock index in Italy finished the day down 3.8 per cent. The DAX index in Germany and the CAC-40 in France each declined 2.2 per cent.
 
With inputs from AP