Asian stock markets tumbled on Monday morning, on the first trading day after last week's historic downgrade of the US credit rating.
The falls were echoed by big losses in oil while gold surged to another record as investors moved out of risky assets.
Monday's drop in the markets follows a previous huge sell-off on Friday.
Over the weekend, Standard and Poor's cut the US credit rating to AA+ from the top notch AAA, citing concerns about the size of the country's budget deficits. This is the first such downgrade for the US.
Other top ratings agencies such as Fitch and Moody's have left their AAA ratings on the US intact, and do not expect to change them soon.
But the decision by Standard and Poor's sparked criticism from Washington, with US Treasury Secretary Timothy Geithner saying the agency had shown "terrible judgement" and assuring investors US Treasuries were as safe as ever.
The US credit downgrade adds to problems in the eurozone, amid growing expectations that Italy and Spain could also need a bailout.
When trading opened in Asia on Monday, Tokyo slipped 1.31 per cent by the break, Hong Kong shed 3.59 per cent, Sydney fell 1.28 per cent and Wellington slumped five per cent, while Seoul was 1.73 per cent lower and Shanghai lost two per cent.
In Singapore, shares continued to trade lower with the benchmark Straits Times Index (STI) down 107.76 points or 3.73 per cent lower at 2887.02 as at 11am local time. Volume totalled 980 million shares worth S$1.04 billion, with losers outpacing gainers 567 to 32.
The fear for many investors is that the US economy will slow further, and enter a double-dip recession.
This in turn would hurt Asia, which relies on the US, the world's biggest economy, to buy billions of dollars of exports every month.
"The ratings downgrade has been an unprecedented event," said Alvin Liew of UOB Bank in Singapore.
"It has implications as it shows that growth prospects in the US are expected to remain sluggish over the next two to two-and-a-half years."
But other analysts said the declines in the stock markets were overdone and many investors would use the slump in share prices as a buying opportunity.
"This is a knee jerk reaction," said Arjuna Mahendran of HSBC Private Bank.
He added that despite the risks, Asia's growth outlook was better than that of the US and Europe and investors would eventually have to shift their focus back to the region's markets.
"There will be a rotation towards buying Asia. Money will flow from developed to emerging markets," Mr. Mahendran explained.
Report and Analysis: Asian stock markets dip on global economic growth fears [BBC News, 8 Aug 2011]
Report and Analysis: Asian stocks slide in nervous trade [Channel NewsAsia, 8 Aug 2011]
Analysis: What the Move on U.S. Credit Means for Everyday Investors [Wall Street Journal, 8 August 2011]
Early on Monday, the G7 pledged to support financial stability and growth after the twin impact of the eurozone debt crisis and Friday’s US rating downgrade.
Finance ministers and central bankers from the group of seven industrialised nations said they are "committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth".
They released a statement early Monday, following a teleconference.
"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," the statement said.
"The US has adopted reforms that will deliver substantial deficit reduction over the medium term.
"In Europe, the Euro area Summit decided on July 21 a comprehensive package to tackle the situation in Greece and other countries facing financial tensions," the statement added.
The European Central Bank said on Sunday that it would make major purchases of eurozone bonds in the latest move to stem a debt crisis.
Report: G7 vows to back stability as nervous markets open [AFP, 8 Aug 2011]
Report and Analysis: ECB and G7 signal readiness to intervene [Financial Times, 8 Aug 2011]
Meanwhile, there is speculation that Singapore could revise its full-year economic growth forecast downward this week.
A revised forecast is likely to accompany final second-quarter GDP numbers which will be out on Wednesday.
Economists said they believe the forecast could be cut to between 4.5 and 6.5 per cent.
The current official projection for 2011 is for growth of 5 to 7 per cent.
Last month, flash estimates for the second quarter showed that the Singapore economy contracted by 7.8 per cent, quarter-on-quarter. That was the first quarterly drop since the economy shrank 16.7 per cent in Q3 last year.
On a yearly basis, Q2 GDP grew half a per cent. That was less than the market consensus of one per cent and indicates the slowest growth in two years.
Many will be watching out for clues when Prime Minister Lee Hsien Loong delivers his National Day message on Monday evening.
Analysis: S'pore set to lower economic forecast [Channel NewsAsia, 8 Aug 2011]