By 
By Rafael Nam
The tumble came after Royal Bank of Scotland
Sterling fell to its lowest in almost seven years and the euro dropped to a six-week low, while U.S. stock futures slumped, signaling a potentially tough day ahead for Wall Street.
The spreading caution benefited assets seen as safer, such as the Japanese yen and regional bonds.
"The market is refocusing on the bigger global picture," said Justin Gallagher, head of Sydney sales trading at ABN AMRO, pointing as well to expectations for weak corporate earnings results in coming weeks.
"Clearly the market today continues to factor in more disappointment and certainly, despite the inauguration of Obama ... the market is looking past that now and realizing just how big a mess the global economy is in," he said.
The MSCI index for Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> slid 3 percent as of 0240 GMT, close to the 2009 low. The index is now down nearly 9 percent so far this year, after it fell in 2008 by 53 percent -- its biggest decline on record.
The revival in risk aversion is reining in a rally in Asian shares that had seen the MSCI index surge as of January 7 by 37 percent from five-year lows hit in late November.
Asian banking shares from HSBC
Japan's Nikkei <.N225> dropped 3.1 percent. Indexes in Hong Kong <.HSI> and Australia <.AXJO> fell more than 3 percent, while markets in South Korea <.KS11>, Taiwan <.TWII> and Singapore <.FTSTIL fell more than 2 percent each.
U.S. stock futures slid, with March S&P 500 futures
Governments worldwide are grappling with how to get their banks lending again to revive economies, despite already injecting billions of dollars and implementing other measures such as backing some of their debt.
Royal Bank of Scotland said on Monday it was on course to report a 2008 loss of up to 28 billion pounds ($40.45 billion), leading the U.K. government to increase its stake in the lender to nearly 70 percent.
Central banks have cut interest rates sharply in a bid to spark growth, but even that has failed to comfort investors.
Britain threw its troubled banks their second lifeline in three months on Monday and gave the Bank of England a green light to pump cash into the ailing economy, but the FTSEurofirst 300 <.FTEU3> index of top European shares fell 1.6 percent to its lowest close since November 21.
RATING DOWNGRADES
Obama will be inaugurated as U.S. president later in the day, and his administration is expected to quickly roll out a hefty stimulus package and a revived plan to buy bad bank assets.
European governments are passing spending measures of their own, but the ensuing impact on their budget deficits are leading some credit agencies to cut sovereign ratings.
Spain on Monday became the second euro zone country after Greece to have its credit rating downgraded by Standard & Poor's in less than a week.
The downgrade, combined with worries about the financial sector, sent the euro lower. The currency fell 0.5 percent from late trade on Monday to $1.3010 and earlier hit a six-week low of $1.2988 on trading platform EBS.
The pound, which fell after the British government announced its latest rescue package, extended its losses on Tuesday to slide to $1.4247, its lowest level since March 2002.
The flare up in risk aversion benefited assets seen as safer in volatile times. Against the Japanese currency, sterling tumbled 1.6 percent to 128.90 yen, threatening 14-year lows below 128.77 yen hit earlier this month.
Regional bonds also benefited from investor caution. March 10-year Japanese government bond futures rose 0.12 point to 139.66, near a four-month high of 140.19 hit last week.
Australian bond futures gained as well, supported by expectations for interest rate cuts in the near term as policy makers work to avert a recession. Three-year bond futures rose 0.085 points to 96.880 points, and 10-year bond futures added 0.045 points to 95.995 points.
Commodities have been another big loser since the second half of last year, though U.S. crude futures were steady at $34.39 on Tuesday.
Oil prices fell nearly $2 in electronic trade on Monday after Russia and Ukraine signed a gas deal to end a dispute and 22 days of fighting in the Gaza Strip was halted with separately declared ceasefires by Israel and the Islamist group Hamas.
