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The falls
were echoed by big losses in oil while gold surged to a new record above
$1,700 as investors moved out of risky assets.

They also followed
a huge sell-off on Friday caused by mounting problems in the eurozone
amid growing expectations that Italy and Spain could need a bailout.

The
combination of the eurozone debt problem and Standard & Poor's
downgrade led to frantic talks between financial chiefs and central
bankers of the G7 and European Central Bank at the weekend as they tried
to prevent another day of market turmoil.

Tokyo shed 2.18
percent, or 202.32 points, lower at 9,097.56, Seoul sank 3.82 percent,
or 74.31 points, to 1,869.44 and Sydney fell 2.91 percent, or 119.3
points, to 3,986.1.

Taipei dived 3.82 percent, or 300.33 points, at 7,552.80.

Hong Kong was 3.88 percent lower in the afternoon while Shanghai lost 3.55 percent. Mumbai fell 3.08 percent in early trade.

Global
markets dived Friday -- before the S&P announcement -- after a
fresh batch of weak US economic data and a warning from the head of the
European Commission that the eurozone crisis had likely spread to other
economies.

"Like others, we had been concerned about the
Lehman-like risks of a Greek default," Brown Brothers Harriman said in a
note to clients Monday, referring to the Wall Street bank whose
collapse in 2008 ushered in the financial crisis.

"Compound this
with marked weakness of the US economy, a distracting debt ceiling
debate, and now the downgrade and the worsening of the European debt
crisis, and... by a number of metrics, financial conditions are the
worst since the Lehman debacle," it added, according to Dow Jones
Newswires.

However, IG Markets analyst Ben Potter said he expected
shares to stage a recovery from the devastation at the back end of last
week which saw the Dow Jones suffer its biggest fall since 2008.

"We
feel there is a reasonable chance for some buying interest as the
market begins to realise that it has overreacted to the downside," he
said.

"No one really fully understands the full implications of
this credit downgrade, which is why we have seen the market sold off
hard. It?s a classic case of sell first, ask questions later."

S&P on Friday cut the US debt rating to AA+ with a negative outlook from the top-notch triple-A for the first time.


The decision sparked criticism from Washington, with Treasury Secretary
Timothy Geithner saying the agency had shown "terrible judgement" and
assuring investors US Treasuries were as safe as ever.

With fears
meanwhile running high that eurozone debt could plunge the world into a
new financial crisis, the European Central Bank promised to make major
purchases of eurozone government bonds.

The ECB said it would
renew bond purchases after Italy and Spain announced new measures and
reforms to boost their economies and France and Germany pushed for full
and rapid implementation of a plan to avoid future crises agreed at a
summit last month.

Fears of a global meltdown, which some see as
potentially worse than the 2008 collapse, sent leaders into a flurry of
phone calls between Berlin, London, Paris and Washington over the
weekend to stem the tide.

Officials from G7 nations -- Britain,
Canada, France, Germany, Italy, Japan and the United States -- pledged
to "take all necessary measures to support financial stability and
growth" as nervous global markets re-opened Monday.

"We are
committed to taking coordinated action where needed, to ensuring
liquidity, and to supporting financial market functioning, financial
stability and economic growth," they said in a statement.

"We are
committed to addressing the tensions stemming from the current
challenges on our fiscal deficits, debt and growth, and welcome the
decisive actions taken in the US and Europe," it said.

The G7 and
ECB moves were welcomed by IMF chief Christine Lagarde Sunday, who said
they would "contribute to maintaining confidence and spurring global
economic growth".

Despite the downgrade dealers seemed to be giving support to US Treasury bonds.

The
10-year Treasury yield increased to 2.579 percent, from 2.563 percent
at Friday's New York close, while the yield on two-year Treasuries fell
to 0.268 percent from 0.292 percent, contrary to some predictions of a
much more aggressive initial market reaction.

Lower yields represent higher confidence.

The
euro briefly rose past $1.4370 at 2200 GMT Sunday on the ECB
announcement of the major purchases plan. It was trading at $1.4326 in
Tokyo afternoon trade.

The euro was changing hands at $1.4281 in New York late Friday, before the Standard & Poor's downgrade.

Against the yen the euro was at 111.60 from 111.01 in New York Friday, while the dollar slipped to 77.88 yen from 78.48 yen.

Gold
hit a record $1,704.30 an ounce in Hong Kong, well up from Friday's
close of $1,655.50-$1,656.50, with investors piling into the safe-haven
metal in times of economic uncertainty.

On oil markets New York's
main contract light sweet crude for September delivery tumbled $2.99, or
3.44 percent, to $83.89 a barrel in the afternoon.

Brent North Sea crude for September sank $2.83, or 2.59 percent, to $106.54.

In other markets:

-- Singapore plunged 4.14 percent, or 123.92 points, to 2,870.86 in the afternoon.

-- Manila fell 2.40 percent, or 106.31 points, to 4,331.24.

"This
is not just a knee-jerk reaction. There is real concern that there is a
structural problem in the United States," said Luz Lorenzo of ATR-Kim
Eng Securities.

Exports, tourism, the remittances of Filipino
overseas workers and even the booming business outsourcing sector like
call centres, may all be affected if the downgrade results in a weaker
US currency, she told AFP.

San Miguel Corp. saw its A shares fall
3.17 percent to 119.10 pesos while Alliance Global Group dropped 4.79
percent to 10.72 pesos.

-- Wellington closed 2.78 percent, or 91.06 points, off at 3,185.45.

Telecom
Corp fell 3.3 percent to NZ$2.485, Fletcher Building slid 3.0 percent
to NZ$7.48 and Contact Energy (CEN.NZ) was down 2.4 percent at NZ$4.91.