LONDON - GLOBAL stock markets tumbled on Monday, despite a breakthrough Wall Street bailout deal, as the ongoing financial crisis forced the state rescue of two key European banks.

Asian and European equities suffered fresh losses as the tentative US agreement to rid the financial sector of toxic mortgage-related assets gave only a shortlived boost to sentiment.

In Europe, Belgian-Dutch banking and insurance group Fortis sealed a government bailout, while Britain announced it would nationalise troubled mortgage lender Bradford & Bingley.

Investors were unsettled by signs of widening problems in the banking sector. London's stock market dived 2.51 per cent at 4,960.61 points in early deals, accelerating initial losses.

Paris shares plunged 2.87 per cent to 4,043.74 points and Frankfurt tumbled 3.16 per cent to 5,871.64 points.

Global central banks meanwhile pumped extra cash into the financial system as part of continued efforts to keep credit flowing.

'Despite the US bail out plan now being committed to paper, there's hardly a jubilant mood expected as the new trading week gets underway,' said CMC Markets dealer Matt Buckland in London.

'The fact the funds won't be released in one lot but instead a series of tranches is certainly detracting from its appeal.

'This, combined with the very visible scars of the credit squeeze ... will again weigh in sentiment,' he added, in reference to the state rescues of B&B and Fortis.

The European Central Bank announced a special 38-day euro loan to provide eurozone banks with more cash in a bid to balance conditions on extremely tense interbank money markets.

German bank Hypo Real Estate was meanwhile granted a last-minute 'multi-billion euro' credit line from a consortium of German banks that allowed it to avoid declaring bankruptcy.

Hong Kong share prices closed down 4.3 per cent on Monday, as banking giant HSBC bumped up its mortgage rate, sending property stocks tumbling, dealers said.

Tokyo fell 1.26 per cent by the close, Sydney lost 2.0 per cent and Seoul dropped 1.35 per cent.

There were still doubts about the proposed US financial rescue package, which needs to be approved by Congress and offers no guarantee of an end to the credit crunch that has ravaged global markets, dealers said.

'In our view, while the 'bailout plan' reduces the risk of a systemic collapse, many downside risks remain - not least those related to a protracted slowdown in the global economy,' said Barclays Capital analyst David Woo.

'In addition ... the financial market turbulence is seriously affecting the European financial system as well.' He added: 'The weakness in equities ... suggests the market is pessimistic about the likely effectiveness of the (US) Treasury's plan.'

The US deal, announced just hours before Asian markets opened, is designed to mop up toxic debts from struggling banks and prevent further financial chaos that could tip the world's largest economy into recession.

The bailout, worth up to US$700 billion (S$996 billion), would be the largest government economic intervention since the Great Depression of the 1930s, and aims to shore up an economy in the face of a severe housing slump.

'We know that we are most likely to avoid a meltdown in the US financial sector, but what matters now is negative news from new regions,' added Motomi Hiratsuka, a trader at BNP Paribas.

With markets still skittish, the Australian and Japanese central banks pumped more emergency funds into the short-term money markets.

US Treasury Secretary Henry Paulson said the package 'gives us the flexibility to unclog our financial markets (and) increase the ability of our financial institutions to deliver the credit that will help create jobs.'

Democratic lawmakers warned US financial firms that they would be under stricter supervision from now on.

'The party is over,' said House Speaker Nancy Pelosi. 'The era of golden parachutes for high-flying Wall Street operators is over. No longer will the US taxpayer bail out the recklessness of Wall Street.'

The measures laid out in the bill include the immediate release of US$250 billion to enable the government to buy up troubled assets.

The US president is authorised to approve a further US$100 billion, but the plan gives Congress a veto power over purchases above that limit and sets a ceiling for all purchases of US$700 billion.

The deal on the rescue plan provided a modest boost to the dollar, while worries about problems at European banks weighed on the euro. -- AFP

KUALA LUMPUR
Malaysian share prices eased 0.1 per cent on Monday, in thin volume ahead of the Eid al-Fitr celebrations marking the end of the Muslim fasting month of Ramadan, dealers said.

The Kuala Lumpur Composite Index dropped 0.81 points to close at 1,019.72. Declining stocks outnumbered losers 302 to 209.

The losses were led by the plantation and construction sector.

'With many fund managers having squared off positions last week, retail punters are ruling the market today... it?ll be more of the same tomorrow,' one dealer told Dow Jones Newswires.

Among major stocks, Gamuda lost 3.6 per cent to 2.17 ringgit (S$0.90), Nestle was down 4.4 per cent at 27.00 ringgit, and Malaysia Airlines lost 1.7 per cent at 3.44 ringgit.

SHANGHAI
China's financial markets will be closed from Monday for a week-long national holiday. Trading will resume on Monday, October 6.

HONG KONG
Hong Kong share prices closed down 4.3 per cent on Monday, as banking giant HSBC bumped up its mortgage rate, sending property stocks tumbling, dealers said.

The benchmark Hang Seng Index closed down 801.41 points at 17,880.68.

HSBC increased its rate on new mortgages by 50 basis points from Monday as interbank lending rates here have surged in recent days amid ongoing liquidity concerns.

TOKYO
JAPANESE shares ended down 1.26 per cent on Monday as global financial turmoil claimed fresh victims in Europe and investors waited nervously for the US Congress pass a huge Wall Street bailout plan.

The Tokyo Stock Exchange's benchmark Nikkei-225 index lost 149.55 points at 11,743.61. The broader Topix index of all first-section shares dropped 20.02 points or 1.74 per cent to 1,127.87.

The US plan aims to mop up bad debts from struggling banks and prevent further financial chaos that could tip the world's largest economy into recession.

But there were lingering doubts about how effective the package will be in stemming the worst US financial crisis since the Great Depression, dealers said.

Although fears about the US financial crisis are easing, 'investors still want to see details of a bailout,' Kazuhiro Takahashi, general manager at Daiwa Securities SMBC, told Dow Jones Newswires.

The tentative US agreement, announced just hours before Asian markets opened, aims to mop up bad debts from struggling banks and prevent further financial chaos that could tip the world's largest economy into recession.

But instead investors were unsettled by signs of widening problems in the European financial sector, Belgian-Dutch banking and insurance group Fortis was forced to seek a government bailout, while Britain announced it would nationalise troubled mortgage lender Bradford and Bingley.

'We know that we are most likely to avoid a meltdown in the US financial sector, but what matters now is negative news from new regions,' said Motomi Hiratsuka, a trader at BNP Paribas.

Carmakers were hit by worries about slowing demand. Toyota Motor lost 3.2 per cent to 4,590 yen (S$61.13) after Japan's top automaker said it was curbing production in the once-booming Chinese market.

Isuzu Motors plunged 11 per cent to 291 yen as Goldman Sachs lowered its rating on the stock to 'neutral' from 'buy'.

Shipping firms remained pressured by falling freight charges. Mitsui O.S.K.

Lines slid 6.0 per cent to 889 yen and Kawasaki Kisen dropped 6.3 per cent to 628 yen.

On the foreign exchange market, the dollar rose to 106.28 yen in Tokyo afternoon trade from 105.95 in New York late Friday. The euro slipped to 154.81 yen from 154.92. -- AFP