SINGAPORE: The calm that had descended over Asian bourses since the Olympics began 10 days ago was shattered Tuesday (19 Aug) by renewed fears over Wall Street's financial woes.

Traders scrambled for cover, leaving regional markets battered and bruised.

Talk that the US mortgage giants Fannie Mae and Freddie Mac were in strife triggered the 180-point sell-off on Wall Street and had a similar effect here, with banks and property counters dumped.

The mood was soured even more when China hiked export taxes on coal, a move that raised fears of more such measures after the Olympics to cool down the mainland's red-hot economy.

What worried traders here was the way the selling frenzy seemed to be feeding on itself, given the lack of institutional buyers to pick up bargains as prices fell. The selling pressure was also aggravated by a flurry of bank margin calls on traders who had taken up big loans to pay for their shares.

"It is so depressing. Shares are getting whacked by margin calls just as liquidity dries up," said dealer Thomas Lee.

Hong Kong's Hang Seng Index sank 2.13%, Japan's Nikkei-225 Index was down 2.28% while South Korea's Kospi Index fell 1.68%.

China's Shanghai Composite Index bucked the trend and rose 1.06% after collapsing 5.3% on Monday (18 Aug). , And Singapore's Straits Times Index (STI) lost 48.59 points, or 1.75%, to 2,728.39--its lowest close in 21 months.

Traders were under siege all day, starting from the overnight carnage on Wall Street. That was ignited by press reports suggesting that the US government might be forced to recapitalise Fannie Mae and Freddie Mac on terms that might wipe out existing shareholders.

Fannie and Freddie lost 22% and 25%, respectively, while fears arose that interest on mortgages backed by them would rise, putting more pressure on the reeling US housing market.

As both firms together own or guarantee about US$5 trillion worth of mortgages, their problems could spell renewed financial contagion for the troubled global credit markets.

For investors in Hong Kong and Singapore, it was like 'being caught in a pincer'--to use the words of one dealer--as Wall Street's losses came just after Shanghai's Monday collapse.

Some traders also attributed the savage sell-down on Wall Street to a lifting of a curb on "naked selling" of US financial stocks last week.

"With the lifting of the curb, any whiff of bad news will send US financials reeling. This puts pressure on regional blue chips like DBS Group Holdings because hedge funds have to liquidate positions here to plug US losses," a trader said.

Sentiment in Shanghai was badly bruised by fears that major shareholders would be tempted to unload billions of dollars worth of IPO shares with the expiry of their lock-up period this month.

There is also hardly any sign of foreign institutional buyers coming back to the region in a big way after having withdrawn most of the money they invested here last year in the past few months.

A Citigroup report on Monday said that investors put a net sum of just $22 million into funds investing in Asian equities last week, a sharp contrast with the $803 million invested four weeks ago.

For the past two months, foreign funds have been net sellers in Asian markets such as Singapore, Taiwan and China, as regional indexes tumbled from May highs.

The only consolation is that the selling pressure from foreign funds seemed to have abated in the past week. In some markets, such as India and South Korea, they have even turned into net buyers. (By GOH ENG YEOW/ The Straits Times/ ANN)