The price of gold struck a record high above $1,700 an ounce on Monday with dealers flocking to the safe haven metal as Asian stocks tumbled following Standard & Poor's downgrade of US debt.
The price of gold reached $1,704.30 an ounce in Hong Kong trade.
Asian stocks tumbled on Monday after last week's historic downgrade of the United States' credit rating, which compounded concerns over the world's biggest economy as well as the global outlook.
The falls were echoed by big losses in oil while gold surged to another record as investors moved out of risky assets.
They also followed a huge sell-off on Friday caused by mounting problems in the eurozone amid growing expectations that Italy and Spain could need a bailout.
The combination of the eurozone debt problem and Standard & Poor's downgrade led to frantic talks between financial chiefs and central bankers of the G7 and European Central Bank at the weekend as they tried to prevent another day of market turmoil.
Tokyo shed 2.16 percent in the afternoon, Hong Kong shed 4.04 percent by the break, Sydney fell 1.96 percent and Singapore dived 4.61 percent, while Seoul sank 6.3 percent and Shanghai lost 3.68 percent. Wellington fell 2.30 percent.
Global markets dived Friday -- before the S&P announcement -- after a fresh batch of weak US economic data and a warning from the head of the European Commission that the eurozone crisis had likely spread to other economies.
"Like others, we had been concerned about the Lehman-like risks of a Greek default," Brown Brothers Harriman said in a note to clients Monday, referring to the Wall Street bank whose collapse in 2008 ushered in the financial crisis.
"Compound this with marked weakness of the US economy, a distracting debt ceiling debate, and now the downgrade and the worsening of the European debt crisis, and... by a number of metrics, financial conditions are the worst since the Lehman debacle," it added, according to Dow Jones Newswires.
However, IG Markets analyst Ben Potter said he expected shares to stage a recovery from the devastation on Thursday and Friday, which saw the Dow Jones suffer its biggest fall since 2008.
"We feel there is a reasonable chance for some buying interest as the market begins to realise that it has overreacted to the downside," he said.
"No one really fully understands the full implications of this credit downgrade, which is why we have seen the market sold off hard. It's a classic case of sell first, ask questions later."
Ratings agency Standard & Poor's on Friday cut the US debt rating to AA+ with a negative outlook from the top-notch triple-A for the first time.
The decision sparked criticism from Washington, with Treasury Secretary Timothy Geithner saying the agency had shown "terrible judgement" and assuring investors US Treasuries were as safe as ever.
With fears meanwhile running high that eurozone debt could plunge the world into a new financial crisis, the European Central Bank promised to make major purchases of eurozone government bonds.
The ECB said it would renew bond purchases after Italy and Spain announced new measures and reforms to boost their economies and France and Germany pushed for full and rapid implementation of a plan to avoid future crises agreed at a summit last month.
Fears of a global meltdown, which some see as potentially worse than the 2008 collapse, sent leaders into a flurry of phone calls between Berlin, London, Paris and Washington over the weekend to stem the tide.
Officials from G7 nations -- Britain, Canada, France, Germany, Italy, Japan and the United States -- pledged to "take all necessary measures to support financial stability and growth" as nervous global markets re-opened Monday.
"We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth," they said in a statement.
"We are committed to addressing the tensions stemming from the current challenges on our fiscal deficits, debt and growth, and welcome the decisive actions taken in the US and Europe," it said.
The G7 and ECB moves were welcomed by IMF chief Christine Lagarde Sunday, saying they would "contribute to maintaining confidence and spurring global economic growth".
The euro briefly rose past $1.4370 at 2200 GMT Sunday on the ECB announcement of the major purchases plan. It was trading at $1.4315 in Tokyo afternoon trade.
The euro was changing hands at $1.4281 in New York late Friday, before the Standard & Poor's downgrade.
Against the yen the euro was at 111.71 from 111.01 in New York Friday, while the dollar slipped to 78.03 yen from 78.48 yen.
Gold opened at a record $1,686.00-$1,687.00 an ounce in Hong Kong, well up from Friday's close of $1,655.50-$1,656.50, with investors piling into the safe-haven metal in times of economic uncertainty.
On oil markets New York's main contract, light sweet crude for September delivery dived ê2.34, or 2.69 percent, to ê84.54 a barrel. Brent North Sea crude for September sank $2.80, or 2.56 percent, to $106.57.
Indian stocks fall nearly 3% on opening
Indian stocks fell nearly three per cent on opening Monday, tracking plunging Asian markets after last week's downgrade of the United States' credit rating.
The benchmark 30-share Sensex on the Bombay Stock Exchange lost 472.41 points or 2.73 percent to 16,833.46 within minutes of opening.
Software outsourcers Wipro and Infosys, which all have a large exposure to the US market, were worst hit, shedding more than 4.0 percent, while fellow IT giant TCS lost nearly 5.30 per cent.
Leading vehicle maker Tata Motors shed more than 5.0 percent on concerns of slowing auto sales, as interest rates and input costs continue to rise. Tata Steel was also affected.
Hong Kong shares tumble 4.04% by break
Hong Kong shares dived 4.04 percent on Monday morning after the United States' credit rating was downgraded at the end of last week.
The benchmark Hang Seng Index tumbled 845.94 points to end the session at 20,100.20 on turnover of HKê48.41 billion (ê6.20 billion).
Chinese shares dropped 4.78 percent in late morning trade Monday before limiting its losses to 4.00 percent on investor concerns about the downgrading of the US credit rating, dealers said.
The Shanghai Composite Index was down 125.66 points at 2,500.76 before recovering slightly.
Standard & Poor's on Friday cut the United States' top-class credit rating for the first time ever, citing deep divisions in Washington over its long-term fiscal standing.
"The downgrading of the US credit rating had a big negative impact on domestic market sentiment," said Wu Dazhong, an analyst at Guotai Jun'an Securities.
"Investors started panic selling without taking share valuations or corporate earning outlook into account," he added.
Nikkei falls more than 2%
The Nikkei average fell more than 2 percent on Monday, extending its losses as Asian markets tumbled after Standard & Poor's downgraded the US sovereign debt rating.
The benchmark Nikkei was down 2.1 percent at 9,108.68 in early afternoon trade, while the broader Topix shed 2.2 per cent to 783.24.
Asian stock markets sink after US credit downgrade
Asian stocks dropped sharply Monday as the first-ever downgrade of the US government's credit rating jolted the global financial system, reinforcing fears of a rapid slowdown in economic growth.
Oil prices extended recent sharp losses, trading below $85 a barrel on expectations that slower global growth will crimp demand for crude. The dollar was lower against the yen and the euro.
Among the major Asian markets, Hong Kong's Hang Seng tumbled 4 per cent to 20,109.49 and South Korea's Kospi slid 3.3 per cent to 1,879.93. Japan's Nikkei 225 stock average was down 1.3 per cent to 9,178.03 by its midday break.
Futures pointed to losses on Wall Street when it opens Monday. Dow futures were off 225 points, or 2 per cent, at 11,177 and broader S&P 500 futures shed 25.5 points, or 2.1 percent, to 1,172.42.
Standard & Poor's downgrade of the U.S. sovereign credit rating to AA+ from the top-notch AAA, announced late Friday, was yet another blow to confidence in the struggling U.S. economy. It adds to growing fears that the world's No. 1 economy may be headed back into recession.
Those anxieties have been compounded by signs that Europe's government debt crisis is threatening to engulf bigger economies such as Italy and Spain.
David Cohen of Action Economics in Singapore said the downgrade caused already nervous investors to flee riskier assets such as stocks but need not derail the U.S. economic recovery even if it is sluggish.
"Clearly, the downgrade fed the anxiety that was evident in global markets last week," Cohen said. "But we need not see another global financial crisis as long as people can calm down quickly enough."
Elsewhere in Asia, Australia's S&P/ASX 200 index dropped 1.8 per cent to 4,030.80. Singapore's benchmark dived 3.7 per cent, Taiwan's market slid 2.6 per cent and China's Shanghai Composite shed 3 per cent.
"I think it's still a matter of people being cautious given they don't really know how wildly these overseas markets will respond," Westpac Banking Corp. chief economist Bill Evans told Australian Broadcasting Corp. television.
"I would expect people will take the risk off the table at the moment waiting for some more clarity in those two big issues: how will the US respond to the downgrade and will the Europeans settle down these concerns in Europe?" he said.
Meanwhile, a flurry of weekend activity by global finance officials gave rise to hopes of coordinated action to prevent a market meltdown.
Seeking to calm the panic spreading across financial markets, finance officials from the Group of Seven industrial countries issued a joint statement late Sunday saying they were committed to taking all necessary measures to support financial stability and growth.
The G-7 statement came after the group held an emergency conference call to discuss the debt crisis in Europe and market prospects following the announcement of the first-ever downgrade of the credit rating of the US government.
The European Central Bank, meanwhile, said it will "actively implement" a bond-purchase program that could boost Spanish and Italian bonds and drive down interest yields that threaten those countries with financial disaster.
The burst of activity underscored how government debt levels in Europe and the U.S. have unsettled financial markets — and sharpened fears that debt troubles could derail the global recovery from the 2007-2009 financial crisis.
The Dow fell 5.8 per cent last week amid dour U.S. economic news. It plunged 513 points on Thursday alone, the worst day for the Dow since the global financial crisis erupted in 2008.
Benchmark oil for September delivery was down $2.31 to $84.57 a barrel in electronic trading on the New York Mercantile Exchange. Crude rose 25 cents to settle at $86.88 on Friday.
In London, Brent crude was down $2.46 at $106.91 per barrel on the ICE Futures exchange.
In currencies, the dollar weakened to 78.11 yen from 78.34 yen late Friday in New York. The euro rose to $1.4331 from $1.4265.