Japan's Nikkei index dived nearly five per cent to its lowest point in more than four years and stocks all across the region followed suit on Monday.

The German government stepped in to rescue ailing mortgage lender Hypo Real Estate on Sunday after previously opposing a Europe-wide bailout similar to that adopted in the US.

Angela Merkel, the German chancellor, also made a U-turn and pledged that the country would also offer an unlimited guarantee for all private savings accounts.

The steep market declines in Asia came even after the US House of Representatives passed the White House's $700bn financial rescue plan as market attention shifted from worry about whether or not the proposal would pass to concern over how it would be carried out.

Analysts said widespread slides in US shares showed the impact of the financial crisis was expanding into a broad swathe of the economy.

"Financial shares have been volatile for some time, but now we're seeing selling of a lot of other sectors as well as worry about the rescue plan now becomes worry about company results," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

"The economic slowdown is moving to centre stage as the key market factor, and having it come just as corporate earnings are coming out is a really bad thing."

Agencies