Japan's benchmark Nikkei index plunged 1.5% in the first minute of trading.

South Korean shares dropped by around 5%, with Sydney's market continuing its longest losing streak for 26 years, down 7.1% on the day at the close.

In Bombay, India's main index fell 9.75% within minutes, triggering an automatic one-hour halt in trading.

The loss in Indian shares came after a fall of 7.41% on Monday, the Sensex's worst day ever.

India's Finance Minister P Chidambaram has urged the Indian investors to "remain calm" and advised them to "stay invested".

Mr Chidambaram said that "enough liquidity will be provided to the brokers to tide over the present crisis".

In Japan, during Tokyo's morning trading session, stocks tumbled more than 4%, hitting new two-year lows.

In China, the main Shanghai Composite Index fell more than 5% in early trade, while markets in Taiwan saw similar falls.

Hong Kong's Hang Seng Index was also down more than 5% by mid-morning.

The decline continued a worrying start to 2008 for Asia's markets.

So far this year, Japan's Nikkei has dropped 13%, Hong Kong's Hang Seng is down more than 14% and China's main Shanghai index has slipped almost 7%.

But the Japanese government said it saw no reason to intervene, and a Bank of Japan meeting left interest rates unchanged.

"Stock markets across the world are falling and it basically stems from the United States," said Hiroko Ota, the minister for economic and fiscal policy.

"It is difficult at the moment to mull action by Japan alone. Instead, we should cooperate globally," she said.

Global recession feared

Monday saw global stock indexes suffer their biggest slump since the terrorist attacks of 11 September 2001.

On Monday, London's FTSE 100 index tumbled 5.5% to 5,578.2, wiping £77bn ($149bn) off the value of its listed shares.

Indexes in Paris and Frankfurt slumped by about 7%, while share prices in South America also dropped.

The Brazilian stock market - the largest in the region - fell by 6.6%, while Mexico's IPC index fell 5.35%.

Brazil's real dropped by 2.47% against the dollar, and Mexico's peso lost 0.85% against the US currency, registering a five-month low.

Investors questioned whether a recent plan to boost the US economy would be enough to avert a full-blown recession.

Dominique Strauss-Kahn, the head of the International Monetary Fund, said the global economic situation was "serious" and that all countries in the world were suffering in the wake of a slowdown in US growth.

Last week the US government announced a financial stimulus plan which would involve about $145bn in tax cuts to encourage spending.

US bond markets, which were closed for a public holiday on Monday, are to reopen later on Tuesday and many analysts say they could see sharp falls after markets worldwide reacted negatively on Monday.

Francis Lun of Fulbright Securities in Hong Kong said the falls stemmed from disappointment that the US stimulus was "too little, too late" adding that investors felt "it wouldn't help the economy recover".

'Panic mode'

The worry is that tax breaks and spending measures will not be enough to boost consumer spending in the US, because deeper economic problems remain.

In particular, the slowing housing market and problems in the sub-prime sector - which lends to those with limited or no credit histories - has contributed to a slowdown.

"We're falling back into the crisis of confidence in the financial sector," said Hugues Rialan, of Robeco France.

"The banks have been reassuring the market over their exposure to US mortgage-related investments, but now we realise there is nothing reassuring about it," he said.

Finance firms were among the main fallers, with Dutch ING Group, Germany's Allianz and Swiss Re all falling about 10%, while Royal Bank of Scotland shed 8%.

Many shoppers are struggling under higher mortgage repayment costs, prompting default rates to surge, especially among sub-prime borrowers.

This has prompted banks to tighten their lending policies after losing huge amounts of investments linked to the US housing and mortgage markets.

The state of the US economy is crucial for many of Europe's and Asia's biggest companies because it is one of their biggest export markets.

Any slowdown in demand is likely to hurt corporate profit growth and push share prices even lower, analysts have warned.

But some analysts took comfort from the prospect of falling US interest rates.

"If interest rates are cut to the extent we and others expect, the likelihood is that today's share prices will look like silly values in 12 months' time, if not before," said Mike Lenhoff at Brewin Dolphin Securities.

http://news.bbc.co.uk/1/hi/business/7201658.stm