Asian stocks fall on bank fears

Fresh concern about the banking sector has hit stocks

Asian shares have fallen sharply in Tuesday trading, echoing declines in the US caused by renewed concerns about the health of the world's banks.

Hong Kong's Hang Seng index ended down 5.1%, its biggest drop in two weeks, while Japan's Nikkei lost 2.2%.

The declines were sparked by Bank of America, the largest in the US, reporting a big increase in the amount of funds it needs to cover bad debt.

This has reignited fears that there may be more losses in the banking sector.

'Economic strain'

The share falls in Japan and Hong Kong were led by banking stocks, and came after Wall Street's main Dow Jones index ended Monday trading down 3.6%.

Shares in Bank of America ended Monday down 24%, while rival Citigroup gave up 18%.

The declines also came after President Barack Obama said at the weekend that the economy remained under strain.

Analyst Hideyuki Ishiguro said investors were now "wondering if banks are really all right".

"But even amid these worries there are some signs of improvement in the real economy, especially in China, and this will prevent sharp selling," he added.

Observers say investors are worried that some institutions may need to raise additional capital to cope with future losses, a move that would potentially further dilute the stakes of existing shareholders.

Inflated

Bank of America said on Monday that it had set aside $13.4bn (£9.2bn) to cover credit losses in the first three months of 2009, up from the $8.5bn figure given in the fourth quarter of last year.

This overshadowed figures showing its net income had risen to $4.2bn in the first three months of 2009 from $1.2bn a year earlier, beating analysts' expectations.

The results were inflated by its purchases of Merrill Lynch, which added $3.7bn in net income, and Countrywide, which boosted its mortgage arm.

Meanwhile, shares of Citigroup were hit after Goldman Sachs analysts said credit losses at the bank had continued to grow rapidly.