The Dow Jones industrial average and the Standard & Poor's 500 index both lost 2.6 per cent to close barely above their lows for the year while the Nasdaq gave up 2.3 per cent for its lowest closing level in five and a half years.

"Market eyes are on global recession fears," Kazuhiro Takahashi, equity trading information head at Daiwa Securities SMBC, said.

"Investors find it hard to invest in the financial sector unless signs emerge that the global economy has started to improve."

Although worries that the US economic stimulus measures are unlikely to get into gear triggered selling, Kazuhiro said the Tokyo market was spared of a plunge, thanks to bargain hunting.