The Hong Kong, Shanghai and Singapore bourses all made initial gains, but these evaporated to leave a sea of red after investors trimmed positions, unconvinced that the Fed's 50 basis point cut would restore the US economy to health.

Sentiment was not helped by the weak opening in European markets, including in London and Paris, which produced a fresh bout of late selling in Asia.

The stocks of regional banks such as DBS Group Holdings and OCBC tumbled as those of European financial giants Barclays and HSBC Holdings were sold down because of fresh worries about their exposure to troubled specialised US insurers that guarantee bond payments.

'Investors have taken the latest Fed cut in their stride and are selling into any rally in case there is further bad news,' said local brokerage dealer Amy Tan.

In addition, buying interest has begun to dry up ahead of the Chinese New Year holiday next week.

'It is such a big irony,' said Ms Tan. 'Firms can't buy back their shares ahead of their full-year results. And hedge funds are indiscriminately dumping stocks to help themselves cope with margin calls and redemptions by worried investors.'

This negated any relief investors might have felt after the rate cut, which came on top of last week's cut of 75 basis points.

Yet, as one trader noted: 'The best time to make a killing in the stock market is when fear is in the air and there are no buyers in sight.'

Since Monday, the benchmark Straits Times Index has fallen by 5.6 per cent, Hong Kong's Hang Seng Index by 6.6 per cent and China's Shanghai Composite Index by 7.9 per cent.

Investors are reacting sharply to every piece of bad news, and have failed to note the good news.

But it is only a matter of time before they do start reacting to the glad tidings, which could lead to another rebound in stock prices.

The Baltic Dry Index - which tracks the cost of shipping commodities - rose 5.1 per cent yesterday. This was its first gain in more than a week, and came about because Australian miner BHP Billiton and China-based Baosteel Group had signed a 10-year supply contract for an extra 94 million tons of iron ore.

This might help restore faith in steelmakers' predictions of strong growth in China's economy despite widespread disruption caused by snowstorms in much of the country, said the trader.

Analysts also expect January job data for the US to reveal positive surprises when the figures are released tonight.

'The jobless claims have, so far, been more benign than expected. This signals that job creation in the US is still strong,' said CIMB-GK research head Song Seng Wun.

Hopes are also running high that bond insurers might still escape unscathed, after Merill Lynch's new chief executive, Mr John Thain, was reported as saying that these firms could receive cash infusions from investors.

Many research houses are also expressing hopes that, with the aggressive actions taken by the Fed to cut interest rates, any US slowdown will be brief.

Morgan Stanley yesterday urged investors to accumulate Asian stocks at the current depressed levels as they might enjoy double-digit returns when the US economy recovers.

'Sharply negative real interest rates are positive for financials and property in Singapore and Hong Kong after the aggressive Fed rate cuts,' it added.

engyeow@sph.com.sg