TOKYO (AFP) - Battered Asian stocks reeled from another huge selloff Friday with Tokyo plunging by the most in over seven years as panicky investors dumped shares to escape the snowballing credit crisis.
Heavy selling on Asia's largest bourse quickly spread across the entire region with major markets down more than five percent as investors scrambled to exit the market fearing further heavy losses.
Japanese share prices closed with a massive 5.42 percent loss, suffering the biggest one-day point drop since April 2000.
"The market is in a very bad state right now," said Fumiaki Nakanishi, head of market research at SMBC Friend Securities.
"Overseas investors are massively selling shares. The situation is very serious with no sign of things calming down," he said.
Stock markets around Asia plunged as investors remained extremely nervous that more bad news might emerge from US credit markets. European markets opened mixed Friday.
Hong Kong share prices were down 6.0 percent in afternoon trade while Singapore tumbled more than 5.0 percent as investors fretted that problems in the US mortgage sector could spark a full-blown credit crunch.
Investors fled "the crashing stock markets and headed to the safer bond market," said Akihiko Inoue, a strategist at Mizuho Investors Securities.
Seoul closed 3.1 percent lower after plunging nearly seven percent Thursday -- its biggest ever one-day point decline.
"It's hard to believe that all the skeletons are out of the closet," said Eric Betts, an equity strategist at Nomura Securities in Sydney where shares ended 0.70 percent lower.
"Some of these (firms' problems) will only come to light if their lenders pull the plug on them or force them to come clean," he added.
For Asian markets the main worry is that foreign investment funds will be forced to further offload shares to cover losses in securities backed by US subprime mortgages to risky borrowers, or to stash funds in more stable bonds.
Overnight on Wall Street, US shares fell deep into the red again before recovering much of the losses to close slightly lower after another extremely volatile day. The London market tumbled Thursday by over four percent.
In Tokyo a stronger yen dimmed prospects for Japanese exporters' future earnings, while uncertainty about whether the Bank of Japan will raise interest rates next week kept investors on edge.
An unravelling of risky "carry trades" that have allowed investors to binge on cheap Japanese credit to invest in fast-growing Asian stock markets appeared to be taking a heavy toll around the region.
The yen shot higher against other major currencies as players scrambled to unwind risky positions and send funds back to Japan.
Around the region markets were buckling again under heavy selling.
Shanghai finished down 2.28 percent, Mumbai was off 2.33 percent, Bangkok declined 0.61 percent while Kuala Lumpur fell 5.08 percent and Manila ended two percent lower.
The Australian and Japanese central banks injected extra liquidity into the banking system again Friday to try to calm markets but the focus of investors remained on events overseas.
"Market sentiment is a disaster," said Ryuta Otsuka, head of research at Toyo Securities in Tokyo.
"The massive selloff is the result of various factors but mostly because of overseas investors reducing risk."
The US government reported Thursday that new home construction dived to a 10-year low in July, and leading US mortgage lender Countrywide Financial said it had tapped an 11.5-billion-dollar credit line to boost its finances.