Asian stocks tumble as doubts surface over US rescue plan

Asian share prices tumbled in early trade Tuesday, as doubts mounted over whether a drastic rescue package for the US financial sector could avert an economic meltdown.

Following strong rebounds in global markets on hopes the US government's 700-billion-dollar plan could rebuild shattered confidence, investors on Tuesday grabbed profits and sought refuge in safe havens such as gold and oil.

Hong Kong shares were down 2.2 percent in early trade as investors cashed in after the market had rebounded more than 20 percent since Thursday.

Australian share prices shed 1.9 percent in morning trade on worries about the rescue plan, while China's benchmark index fell almost one percent.

Singapore shares slid 1.84 percent in early trade, while South Korea traded flat after the KOSPI index had underperformed Monday.

Japan's financial markets were closed Tuesday for a public holiday.

Investors piled into gold and oil as they assessed whether the US Congress would endorse President George W. Bush's dramatic intervention to buy up troubled mortgage-backed securities from distressed banks.

Gold prices listed in Hong Kong opened at 906.00-907.00 US dollars an ounce on Tuesday, almost 30 dollars higher than its close on Monday.

Crude oil settled in Asian trade on Tuesday after the benchmark New York futures contract soared more than 16 dollars overnight for its biggest one-day gain ever.

The contract for October delivery had rose 16.37 dollars a barrel to 120.92 dollars at the close of floor trading on the New York Mercantile Exchange on Monday, but eased to just over 109 dollars in Asian trade.

The rally was partly driven by technical factors linked to the October contract's expiration at the close of trade, analysts said.

Confidence drained from stock markets as both US presidential candidates expressed strong reservations about the government's enormous bailout proposal while the US Congress asked for key concessions.

The doubts led the Dow Jones Industrial Average to plunge 3.27 percent overnight, giving back its gains from Friday's rally.

The Nasdaq composite slumped 4.17 percent and the Standard & Poor's 500 index shed 3.82 percent. There were also substantial declines on European markets, reversing huge rallies in recent days.

Merrill Lynch Chief North American Economist David Rosenberg said US President George W. Bush's rescue package would only provide some relief from the turmoil.

"We do not think it seriously changes the endgame -- the US economy is in recession and likely to remain so," he said in a research note entitled "Capitalism takes a sabbatical".

"At best (the rescue package) merely removes what was looking like the worst case scenario: the entire collapse of the global financial system and a deep global depression."

Rosenberg said the cost to the public purse of the plan was "akin to fighting another Iraq war."

The US dollar suffered on worries the package would exacerbate spiralling US-government debt, prompting more market uncertainty.

"It's more the ongoing confusion over the sketchy details," said Thomas Lam, treasury economist with United Overseas Bank Group.

The rising oil price and other inflationary pressures have meant that the ability of central banks to cut interest rates, and therefore encourage a reverse in the slowdown of their economies is severely limited.

The oil jump "is going to tie the Fed's hands to some extent," Russ Koesterich, chief investment strategist at Barclays Global Investors, told Dow Jones Newswires.

Global markets, reeling from months of uncertainty following the US subprime mortgage crisis, went into a tailspin last week after the collapse of US investment bank Lehman Brothers and the government rescue of insurance giant AIG.