Singapore’s benchmark Straits Times Index plunged 4.9 per cent by midday.

Tokyo, Seoul and Sydney were all down about 5 per cent.

Trading on the Shanghai exchange was closed for a week-long national holiday, but some Chinese banks quoted in foreign bourses lost about 8 per cent.

In Hong Kong the index dived 5.4 per cent but regained 1.4 per cent by noon.

In Mumbai the Indian index tumbled 3.5 per cent when the market opened.

For analysts the financial sector is a mess. Until yesterday everyone thought that the US rescue plan was slam dunk but its defeat in the House of Representatives came as a bitter surprise.

The US rescue plan, a result of tense talks over several days between government officials and lawmakers from both parties, was turned down by 228 to 205 votes in the House of Representatives. About two-thirds of Republican lawmakers refused to back the rescue package, as well as 95 Democrats.

Both supporters and opponents complained about the way the administration presented the proposal as an urgent demand, accompanied by warnings of potential economic collapse, after years of sky-rocketing Wall Street bonuses, abusive mortgage lending, and regulatory neglect by the administration.

“This isn't legislation. This is extortion,” said Florida Republican Representative Ginny Brown-Waite. “This is so embarrassing it turns the stomach of most Americans.”

World stocks lost about US$ 1.7 trillion on Monday.

Gold gained instead 5 per cent whilst oil dropped below US$ 96 a barrel

“The gold market is a sign that world markets are in danger,” financial leaders said.

“It's hard to imagine what's going to happen. It's kind of scary,” said Masayoshi Okamoto, head of dealing at Jujiya Securities in Tokyo.

“In particular, European banks were putting up a front that nothing was wrong, but now they're falling one after another.”