Dealers said players were left with few options but to sell, extending the rout on global bourses which gathered steam late last month amid concerns the US mortgage industry is in real trouble.

Those worries reared again last Friday when mortgage lender, American Home Mortgage, announced it was not accepting new business and Standard Poor's ratings agency downgraded its outlook for investment bank Bear Stearns.

Bear Stearns has been at the centre of troubles linked to the fraught US sub-prime mortgage market, or home loans made to risky borrowers, with two hedge funds losing up to 1.6 billion dollars.

A US Labor Department report which revealed job growth of 92,000 in July added to the negative tone after economists anticipated gains of 135,000.

"If the Dow falls some more, Asian markets, including Hong Kong, will likely see more selling pressure in the short term," said Castor Pang, a strategist at Sun Hung Kai Financial Group in Hong Kong.

"In the face of prospects of more volatility on Wall Street, investors are cautious on what could come out of the Fed meeting this week," he said.

The US Federal Reserve will meet Tuesday and is widely expected to keep interest rates on hold at 5.25 percent, where it has sat for 13 months.

All eyes will be on what the Fed has to say about the US home loan problem and how that may affect the wider economy, with the markets already pricing in one if not two rate cuts by the end of the year.

On Wall Street's lead, the region saw a sharp early sell-off.

Sydney was down 1.7 percent, Taipei shed 1.28 percent, Seoul was off 1.2 percent, Wellington lost 1.16 percent and Manila was among the worst on the day with a 2.8 percent tumble.

Losses were held to a more modest 0.39 percent in Tokyo where solid results by Toyota Motor provide some respite.

"Market players are focusing on signs of whether the sub-prime loan problems will slow the global economy," said Kazuhiro Takahashi, an equities manager at Daiwa Securities SMBC in Japan.