Asian markets plummeted Friday, tracking the overnight plunge on Wall Street, due to renewed worries about fallout from the subprime loan problems in the US and the outlook for the world's largest economy.

Reflecting the prevailing negative impact of the subprime credit crisis, CIBC World Markets downgraded Citigroup (NYSE:C) and Bank of America (NYSE:BAC) , the two biggest US banks.

At the same time, concerns about the health of the US economy resurfaced after the Commerce Department said consumer spending rose by 0.3 percent in September, slightly less than the 0.4 percent increase expected by analysts.

And the performance of the manufacturing sector in October suggested that trouble in the housing and credit markets has seeped into the industrial sector. The Institute for Supply Management reported that its manufacturing index dropped to 50.9 points, down from 52.0 in September and below the expected level of 51.8.

'Worries about the fallout from the subprime loan problems will likely linger,' said Kazuhiro Takahashi, a manager of equities marketing at Daiwa Securities SMBC in Tokyo.

'However, if economic conditions are solid, they would pave a way for the resolution of the subprime loan problem. To gauge the economic outlook, investors are keenly awaiting the jobs data.'
The US employment data will be released later today.

The Labor Department's report on jobs creation is expected to show unemployment remaining steady in October, with payroll growth of 85,000 new jobs compared with 110,000 in September.

The Nikkei 225 Stock Average closed down 2.1 percent at 16,517.48, off a low of 16,484.54.

Hong Kong suffers most
The Hong Kong stock market suffered the biggest fall after setting a fresh record earlier in the week, with the Hang Seng Index closing down 3.3 percent at 30,468.34.

'Hong Kong stocks are a bit expensive, so there's bound to be some correction,' said Kenny Tang, associate director at Tung Tai Securities.

Banking and property stocks led the falls in Hong Kong and most markets in the region.

Sun Hung Kai (OOTC:SGKAF) Properties, Hong Kong's biggest developer, lost 3.10 Hong Kong dollars or 2 percent at 142.70 dollars, while Industrial and Commercial Bank of China (OOTC:IDCBF) , the nation's biggest bank by assets, fell 27 cents or 3.8 percent to 6.85 dollars.

Singapore's biggest bank DBS Group Holdings also pulled back, falling 4.4 percent to 21.60 Singapore dollars. Major property developers were also lower, with CapitaLand down 3.7 percent at 7.90 dollars, and City Developments down 1.9 percent at 15.10 dollars.

Prices of residential properties in Singapore are expected to moderate after the government said last week it will disallow home buyers from deferring initial payments for properties under construction.

'We expect to see a broad-based correction across all sub segments due to the withdrawal of the deferred payment scheme,' said UOB Kay Hian analyst Vikrant Pandey.

Apart from banking and property shares, Singapore shipyard SembCorp Marine resumed its decline after disclosing unrealized foreign exchange losses arising from unauthorized transactions by its former finance director, Wee Sing Guan, made on behalf of its subsidiary Jurong Shipyard.

SembCorp Marine fell 1.8 percent to 4.50 dollars. OCBC Securities and DBS Vickers downgraded their price targets on the stock.

The Straits Times index was down 2.6 percent at 3,707.61.

Inflation worries
Already weighed down by renewed concern about the subprime crisis and the US economy, caution ahead of the Reserve Bank of Australia (RBA) meeting next Wednesday further pressured the Australian stock market.

The S&P/ASX 200 closed down 1.9 percent to end at 6,696.6, off the day's low of 6,677.3.

The RBA is expected to hike its cash target rate 25 basis points to 6.75 percent Wednesday next week. The expectation was fueled by third-quarter consumer price index data showing inflationary pressures were building up in the Australian economy due to spiraling energy prices
While the RBA has traditionally kept interest rates on hold during elections, the spike in inflation in tandem with the strength of the Australian economy will likely cement the central bank's resolve to hike, said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney.

The soaring price of crude oil will remain a concern globally even if it has pulled back from record peaks above 96 US dollars a barrel.

The oil price spike is a particular concern for China as the mainland struggles to keep its economy from overheating. China's GDP continued to grow by 11.5 percent in the third quarter, little affected by its tightening stance after having hiked interest rates five times this year.

Beijing today said it will further strengthen and improve macroeconomic controls in the last two months of the year to cool the economy, as rising production costs stemming from high energy and steel prices continue to fan inflation.

The Shanghai composite index fell 2.3 percent to 5,777.81.

Elsewhere, South Korea's KOSPI was down 1.5 percent at 2,019.34.

The Jakarta composite index was down 0.3 percent at 2,697.95, while Malaysia's KLCI was down 1 percent at 1,394.91.

The Philippine stock market is closed for a public holiday.

jonathan.burgos@thomson.com