Shanghai leads Asian share fall

Investors have enjoyed healthy returns on China's stock market

Asian markets suffered sharp falls on Tuesday as inflation fears and the global credit squeeze hit confidence.

China's main index fell 7.7% after the the country announced measures to restrict commercial lending.

The benchmark Shanghai Composite Index fell 257.34 points to close at 3,072.33, the biggest single-day percentage loss in more than a year.

China's central bank raised the reserve ratio to 17.5% in an attempt to cool the economy.

Red-hot economy

The problem is the outlook is still quite gloomy, because of high inflation and risk of recession Frances Lun Analyst, Fulbright Securities

The move signals China's concern over the huge amount of cash coursing into the economy.

Analyst said the rise, the fifth so far this year, should slow both economic growth and the amount of money flowing into the stock market.

Chinese, Hong Kong and Australian stock markets were closed on Monday for national holidays, so Tuesday was the first chance for investors to react to a raft of gloomy news.

In addition to the lending squeeze, financial stocks were hit by Monday's news from Lehman Brothers of a surprise quarterly loss of $2.8bn.

Across the region stocks tumbled - the main market in Hong Kong fell 4.2%, Sydney closed 2.8% lower and Seoul shed 1.9%.

"The problem is the outlook is still quite gloomy, because of high inflation and risk of recession, is hurting all the equity markets in Asia," said Frances Lun, an analyst at Fulbright Securities.

Oil worries

The price of oil remains a worry for investors. Although the cost of crude has fallen from Friday's high of $139 a barrel, the outlook for companies that consume large quantities of fuel, such as airlines, remains bleak.

Airline around the world have raised fuel surcharges to cover soaring jet fuel bills, and analysts say this could put off travellers.

Shares in Air China fell 10% while Cathay Pacific, Hong Kong's largest airline, fell more than 7%.

The main European markets followed the downward trend on Tuesday, but the falls were not as severe as those seen in Asia.