Hong Kong shares dropped 2.8 per cent as interbank rates rose over fears of another round of speculative attacks on the local dollar, dealers said, as the Shanghai bourse tumbled more than five per cent on profit-taking.

Sydney shares were down 1.4 per cent on a poor Wall Street lead while Tokyo shares were also affected by the US market and strong selling of blue chip Sony. Manila shares were down 2.9 per cent to a five-year low.

Hong Kong's key Hang Seng index lost 212.07 points to close at a more than three-year low at 7,254.36. The last time it stood so low was on January 14, 1995 when it hit 7,252.34.

Howard Gorges, vice President of South China Brokerage, said: "I don't think there is a strong selling pressure, but there is nothing to bring in the buyers. There is no good news atall."

"There are worries over poor corporate results, higher interbank rates, weakening Japanese yen, as well as fears of devaluation of the Chinese yuan," he said. "All these factors have dampened sentiment," said Gorges.

Dealers said the market lost stream after opening higher on overnight gains on Wall Street and closed the morning 1.5 per cent lower. The decline came as interbank rates pushed higher, with the benchmark three-month Hong Kong interbank offered rate rising to 11.125 per cent from Wednesday's 10.25 per cent.

"There are worries over the double-digit jump in interbank rates at a time of reported speculative attacks on the Hong Kong dollar," said Ricky Tam, research head at Delta Asia Securities. Sean Li, associate director of Amsteel Securities, said the market was dragged down by the sharp upward movement of interbank rates. "Trading will continue to be volatile," warned Li, adding that the 7,000 level could be tested in the near future.

Tokyo: Japanese share prices fell 0.7 percent on a weak Wall Street as well as strong selling of Sony Corp, brokers said. "As the rally overnight in New York was only quite limited compared with the slide on Tuesday, investors expect further instability of New York share prices," a Dai-Ichi Securities broker said.

The Nikkei Stock average of the Tokyo Stock Exchange dropped 115.94 points to end at 15,876.22, the lowest closing since June 30 when the key index finished at 15,830.27. The broader Topix index of all first section issues fell 8.69 points to 1,227.09.

"The only factor able to turn the market around at the moment is government policy action, so investor focus now is centred on the extraordinary Diet (parliament) session."

Prime minister Keizo Obuchi is expected to outline details of his pledge of annual tax cuts worth more than six trillion yen (US$ 42 billion) in his inaugural policy speech on Friday.

Finance minister Kiichi Miyazawa has said the scale of annual tax cuts will far exceed six trillion yen and the local press iswidely forecasting a figure closer to seven trillion yen.

Sony shares lost ground due to a penalty of one million dollars imposed by the US Securities and Exchange Commission (SEC) over alleged violations of accounting disclosure rules, brokers said.

Singapore: Singapore share prices ended 1.3 per cent higher following a rebound overnight on Wall Street. "The Wall Street recovery was surely a relief, especially to some who thought selling there is going to be sustained," a dealer with a local brokerage said.

The benchmark Straits Times Industrial index of the Stock Exchange of Singapore rose 13.65 points to 1,065.78 while the broader All-Singapore index rose 5.50 points to 302.75.

Kuala Lumpur: Malaysia's key stock index ended 1.4 per cent lower as news of another downgrade on the country's sovereign risk rating added to gloomy sentiment, dealers said.

US-based Thompson Bankwatch slashed Malaysia's sovereign risk rating to `BBB' from `A-', citing a deteriorating economy, followingsimilar moves by Moody's Investors Service and Standard and Poor's last month. The Kuala Lumpur Stock Exchange's 100-share weighted composite index closed 5.51 points lower at 374.78.

Bangkok: Thai shares slipped 0.8 per cent at the close of trade, losing early gains amid overriding negative sentiment led by selling in blue-chip bank stocks, analysts said. "Our banking sector is in a dangerous position as the non-performing loans in the sector are increasing," Bookclub Securities analyst Thanadej Mahaphokai said.

Analysts said optimism in the morning was quickly dashed by the central bank's denial that it had decided to guarantee major foreign investment in local banks after five years. The Stock Exchange of Thailand (SET) composite index fell two points to 252.07, while the selected SET-50 index lost 0.16 points to 17.24.

Jakarta: Jakarta shares closed 1.8 per cent lower amid renewed concerns over possible unrest ahead of the Independence Day anniversary and uncertainty over Wall Street'sdirection, dealers said. The Jakarta Stock Exchange composite index closed down 7.951 points at 433. 833.

Seoul: South Korean share prices closed 0.7 per cent lower on worries over the Japanese yen and underlying concerns over the possible devaluation of the Chinese yuan, dealers said.

They said the market was trading on positive territory throughout the morning session on a technical rebound following recent losses, but the fall in the Japanese yen dampened investors' sentiment later in the day.

"A major trigger for today's fall was the yen's renewed fall to near 145 to the dollar," one local dealer said. Korea Stock Exchange main index closed down 2.26 points at 320.57.

Sydney: Australian share prices slumped 1.4 per cent on the back of a weaker futures market, wild fluctuations on Wall Street overnight and sickly Asian bourses. "Wall Street was one of the influences which kept things uncertain today," Reynolds Co's Peter Struk said.

"Tokyo and Hong Kong were down. And once thefutures started coming off, they were at a discount to the cash and a lot of sell programs came into the market. That just continually dragged the market down."

The Australian Stock Exchange's main indicator, the All Ordinaries index, fell 37.8 points to 2,602.4, building on Wednesday's heavy deterioration. The All Industrials index closed down 57.4 points at 4,587.2 while the All Resources sector slid 23.5 points to 998.3.

Manila: Philippine share prices closed 2.9 per cent lower as foreign brokers dumped blue chips to push the index to a five-year low amid uncertainties over Wall Street.

"There was heavy selling on the blue chips from foreign brokers," Emmanuel Edward of Aurora Securities Inc said. "I guess it's more of the regional problems and fear over the Dow Jones." The Philippine Stock Exchange index shed 43.86 points to 1,480.89.

Shanghai: Shanghai's B shares, nominally reserved for foreign investors, fell 5.2 per cent on profit-taking, dealers said. The index lost 1.64 pointsto close at 29.60 points while the A share index of locally-traded stocks ended down 13.56 points, or 1.0 per cent, to 1,377.70 points.