The blue chip Straits Times Index skidded 84.12 points to 2,486.55. Volume traded totalled 922 million shares worth 993 million Singapore dollars and losing shares outpaced winners 520 to 88 while 738 issues were even.

News of the collapse on Monday of former Wall Street giant Lehman Brothers rocked investors' sentiments, triggering fears the turbulence swirling in the US financial sector will have a domino effect on the rest of the world, dealers said.

'The market is terrible. The best is to stay away,' a local house dealer told Dow Jones Newswires.

Lehman Brothers, hit by losses from massive writedowns from the meltdown in the US subprime market, was forced to file for bankruptcy after it failed to find a buyer.

'Winding down of the firm may create huge volatility in the market and further losses among its counterparts in the financial system, which would deepen the credit crunch and weigh on US economic growth,' said Mr Dariusz Kowalczyk, chief investment strategist with CFC Seymour.

It was also announced on Monday that Merrill Lynch, another Wall Street titan hit by the troubled US mortgage market, would be bought by Bank of America in a deal worth 50 billion US dollars.

Singapore's three local banks closed lower, with DBS off 56 cents to 16.46, United Overseas Bank down 92 cents to 17.64 and Oversea-Chinese Banking Corp surrendering 21 cents to 7.48.

National carrier Singapore Airlines dropped 30 cents to 15.10, Singapore Telecommunications fell 10 cents to 3.26 and Neptune Orient Lines was down eight cents to 1.87. -- AFP