Asian markets retreat after rally

Asian markets fell as investors took profits after two days of gains.

Most Asia stock markets have fallen following two days of dramatic rises.

Shares in India, Australia and Hong Kong all fell. However, Japan's Nikkei index reversed early losses to end the day 1% higher.

Investors fear that government action to strengthen the financial system will not prevent a worldwide recession.

South-east Asian nations plus Japan, China and South Korea have agreed to set up a multi-billion dollar fund to buy banks' bad debt and support banks.

Australian stocks ended 0.8% lower and Indian shares were down 4.3%, falling below 11,000 points shortly after noon in Mumbai.

In Hong Kong, the Hang Seng index was down 4.3% at 16,110.41.

However, Japan's Nikkei 225 index ended the day up 1.1% at 9,547.47 points despite falling in earlier trade. On Tuesday, it recorded its biggest ever gain.

FROM THE TODAY PROGRAMME More from Today programme

"The rebound is over and the risk of recession as high as ever," said Patrick Shum, strategist with Karl Thomson Securities in Hong Kong.

"Governments across the world are cutting welfare spending and issuing more debt to help the financial system. But these measures will create a bigger problem of an economic slowdown."

Asian action

The Asian move comes after Europe and US announced a series of steps to recapitalise banks and guarantee bank lending to get credit markets moving again.

Governments worldwide have pledged around $3 trillion as part of efforts to stem the financial crisis.

Philippines President Gloria Macapagal Arroyo said the World Bank has committed to provide the Asian fund with $10bn

She said that the Asian Development Bank and the International Monetary Fund may also contribute to the fund as well as the 10-member Association of Southeast Asian Nations (ASEAN) and China, Japan and South Korea.

Wall Street nerves

In New York on Tuesday, Wall Street ended slightly lower at the close of trading as investors took some profits after Monday's big rises in stocks.

The Dow Jones index ended the day down 0.82% as investors turned their attention to the worsening economic outlook. Traders say Wall Street is expected to remain nervous in the weeks ahead because of recession worries.

Late on Tuesday the US announced that its budget deficit had reached $455bn, the highest-ever figure.

This represents more than 3% of the country's gross domestic product.

Treasury Secretary Henry Paulson said it reflected the problems in the housing market, and slower economic growth.