Asia Pacific markets started the week on a down note, following Wall Street's Friday decline.

The MSCI Asia Pacific index had slipped 1.2 per cent to 140 by late morning in Tokyo, its biggest fall since March 17. The index has lost 11 percent so far this year.

Garry Evans, Asia-Pacific equity strategist at HSBC in Hong Kong, said the fall was a predictable reaction to the 0.8 per cent slide of the S&P 500 and to be expected in current market conditions. "This is what we typically find in bear markets, which I fear we are now in. There are nasty sharp falls for two to three days. The lows have all been lower then previous ones."

He said the pattern in Asia now looked most like the bear market of 1993, when the US was dealing with the effects of the savings-and-loans crisis but Asian growth was still resilient.

US light sweet crude for delivery in May was 87 cents lower by late morning in Singapore at $104.75 a barrel. Earlier, oil was more than a dollar lower as part of Iraq's pipeline network shut down by an attack last week had restarted operation. Crude has lost nearly $3 since Thursday.

Tokyo was the worst performer of the region's equity markets. Prices were dragged down by worries about the widening effects of the US credit crisis. This was exacerbated by news that Lehman Brothers (NYSE: LEH - News) is to file suit against Marubeni because of an alleged fraud perpetrated by two former employees of the trading house; Marubeni has claimed it itself was a victim of the fraud. Marubeni separately said it would shut down a London-based fund management operation that handled structured securities because of subprime-related losses.

Marubeni sank to Y725, down 6.7 per cent in the biggest drop among the constituents of the Nikkei 225 average. The index was 2.2 per cent lower early in the afternoon session at 12,543.59. The broader Topix was 2.0 per cent lower at 1,219.39.

Other financial companies suffered too. Mizuho Financial had fallen by 3.1 per cent to Y374,000 and Mitsubishi UFJ Financial lost 1.8 per cent to Y870.

Exporters sank on figures showing Japanese manufacturers cut production in February by 1.2 per cent, the second monthly decline in a row, in anticipation of lower demand in the US. Toyota Motor (NYSE: TM - News) fell by 4.2 per cent to Y5,020, Honda Motor (NYSE: HMC - News) lost 3.5 per cent to Y2,890 and Sony (NYSE: SNE - News) slipped 2 per cent to Y4,010.

Hong Kong shares ended the morning session lower 1.9 per cent lower, with the Hang Seng at 22,840.13. Financial companies accounted for nearly half the fall. Industrial & Commercial Bank of China fell by 2.7 per cent to HK$5.42 and HSBC fell by 0.7 per cent to HK$127.

Solargiga, a solar wafer company, surged nearly 7 per cent on its first day of trading. The company's initial public offering had been delayed because of market conditions. But the rally was short-lived and the shares were just 0.7 per cent higher at HK$2.94 by the break.

Chinese shares were sharply lower on investor disappointment at the failure of rumours last week of market-boosting measures to come to fruition. The Shanghai Composite index was 2.3 per cent lower at 3,497.66.

Australia was one of the better performing bigger markets. A rally in the last half hour of trading erased the day's losses on the S&P/ASX 200, which closed 0.1 per cent higher at 5,355.70.

Financial stocks performed badly. Australia & New Zealand Banking dropped 2.2 per cent to A$22.68. Commonwealth Bank of Australia fell by 2.5 per cent to A$41.65. Centro Retail, one of the biggest victims of the subprime crisis, jumped by 11.1 per cent to A$0.35 on news that it no longer must guarantee $450m of bonds. Its parent, Centro Properties, which needs to refinance $4.5 billion of debt, rose 7.0 per cent to A$0.31.