Bank stocks were particularly hard-hit after the Royal Bank of Scotland unveiled the biggest loss in British corporate history on Monday.

US investors were spooked further by State Street, the world's largest institutional money manager, reporting on Tuesday a $6.3bn unrealised loss on its investment portfolio.

The fallout spread on Wednesday to Japan where the country's third-biggest bank, Sumitomo Mitsui, shed 5.4 per cent. Meanwhile, Mitsubishi UFJ Financial Group lost 3.8 per cent and second-ranked Mizuho Financial Group fell 4.8 per cent.

Obama expectations

Analysts said many investors were awaiting the first moves from the new Obama administration to see how it plans to tackle the flagging US economy.

Yutaka Miura at Tokyo-based Shinko Securities told the Reuters news agency that people "have expectations for [Obama's] economic policies but we know nothing concrete about them, so the market has no choice but to focus on the real economy and earnings".
 
Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities, told Reuters that Obama's initial impact may have "worn off, but soon he'll actually start carrying out his policies and we'll start seeing a reaction to what he really does".

Takashi Ushio, the head of the investment strategy division at Marusan Securities, told Reuters that "worry about the financial system has revived".

But he added that things were "different from last year -  there's no panic".
 
"There's now a safety net in place and people are much more determined to keep things from falling apart."