(CNN) -- Asian stocks dropped sharply in Wednesday trading, after the Dow on Wall Street lost 500 points, closing at its lowest point in five years.
The loss on Wall Street came on top of Monday's losses, combining for a two-day slump of nearly 900 points.
Hong Kong's Hang Seng opened down about 5 percent, while Japan's Nikkei plunged 4.54 percent. Australia's S&P/ASX 200 was down more than 3 percent, and South Korea's KOSPI dropped nearly 3 percent.
Meanwhile, U.S. Federal Reserve Chairman Ben Bernanke said Tuesday that the global financial crisis is likely to restrain the U.S. economy well into 2009.
But he added that the unprecedented steps taken by the U.S. Treasury Department and the Fed were done in time to prevent more expensive and permanent damage to leading financial institutions.
In the UK, its finance secretary, Chancellor Alistair Darling was to make an announcement -- widely expected to be rescue measures for the country's battered banks -- before markets open in Europe Wednesday.
"We've been working closely with the governor of the Bank of England, with the Financial Services Authority and the financial institutions to put the banks on a longer-term, sound footing," said Darling.
British banks were battered Tuesday with the Royal Bank of Scotland sinking to a 15-year low.
European Union finance ministers agreed Tuesday to raise the minimum guarantee for bank deposits across member states.
As Bernanke spoke to a meeting of U.S. business leaders, the Federal Reserve announced a new program to help short-term business loans -- taking its closest step yet to lending directly to businesses. Watch Bernanke's assessment »
But in New York, the statement did little to ease pressure on the markets with the Dow Jones closing down around 500 points. The Nasdaq and S&P were suffering similar falls of about 5.75 percent.
The Federal Reserve's latest intervention came as the Treasury Department scrambled to put in place a $700 billion bailout of the financial system enacted on Friday.
Under that program, the Treasury is expected to purchase troubled assets from banks and financial institutions in an effort to spur more lending.
Under the program announced Tuesday morning, the Fed will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. The program is slated to expire in April 2009. (Full story)
Meanwhile European Union finance ministers agreed to work together on several measures aimed at addressing the global financial crisis, French finance minister Christine Lagarde said following a summit meeting Tuesday in Luxembourg. Watch what the EU plans »
The meeting took place with the continent's financial industry in turmoil as Iceland seized control of its second largest bank Tuesday and UK bank shares fell sharply, despite strong gains on stock markets in London, Paris and Frankfurt.
Lagarde said EU finance ministers had agreed to raise the minimum guarantee of bank deposits to €50,000 ($68,600) across all EU member states. The amount was less than had been expected but Lagarde said the figure was agreed on to enable smaller EU countries and economies to meet the minimum. (Full story)
"The most important thing is that today we should agree on an approach and a willingness on a doctrine that we all share," Lagarde. "Europe is determined to act in a coordinated manner in the face of all of this."
In Iceland, the Financial Supervisory Authority said it had taken over Landsbanki a day after the country suspended trade in six major banks and adopted sweeping controls over the crisis-stricken sector. (Full story)
The country, home to 300,000 people, has also negotiated a €4 billion ($5.4 billion) loan from Russia to ward off national bankruptcy caused by the huge debts taken on by its banks in overseas expansion, the central bank said.
But the Russian state news agency RIA-Novosti quoted Deputy Finance Minister Dmitry Pankin as saying there had been no formal approach from Iceland and no decision had been made, The Associated Press said.
Another Icelandic bank, Kaupthing, said the central bank was giving it a €500 million ($678.8 million) loan to keep it operating. Kaupthing is based in Iceland and operates in 15 other countries.
In the UK, shares in Royal Bank of Scotland plunged nearly 40 percent to a 15-year low, adding to 20 percent losses a day earlier and wiping £10 billion off the value of the business, amid reports leading banks had asked the government for a cash injection.
Shares in HBOS, which is due to be taken over by Lloyds TSB, also dropped 41 percent while Barclays was down 9 percent.
Despite the travails of the banking industry, London's FTSE -- which Monday witnessed its heaviest losses since 1987 -- closed up 0.35 percent and France's CAC up 0.55 percent. But Germany's DAX was down 1.12 percent.
Russia's main RTS and MICEX exchanges were closed Tuesday morning after both took a beating. The RTS index fared worst, falling about 20 percent, losing 9 percent of its value in the first half hour. Watch reaction from around the world »
In another development Tuesday, German lender Hypo Real Estate said its under-fire chief executive George Funke is stepping down, AP reported.
The announcement came after the German government put together a new €50 billion rescue package for the distressed lender.
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