TOKYO: Asian stocks plunged Thursday, dragged down by heavy losses on Wall Street after the US government tore up a plan to buy toxic mortgage assets and fears mounted of a deep recession in Europe.

European markets were set for another rocky ride as the Germany announced its economy officially entered recession, contracting for a second straight quarter.

A profit warning from the biggest US consumer electronics retailer, Best Buy, also sapped confidence, which was already fragile following weeks of market turmoil sparked by a global credit crunch.

Adding to the gloom, Intel Corp., the world's biggest computer chipmaker, cut its fourth-quarter revenue projections, saying the economic slowdown would hurt its business across the board.

Washington's U-turn on the financial bailout plan "also came out of the blue, discouraging investors," said Motoki Ichikawa, investment information chief at SMBC Friend Securities.

Stocks tumbled 5.25 percent in Tokyo by the close while Sydney ended down 5.9 percent at a four-year low. Hong Hong shares were down 6.6 percent in the afternoon.

Markets around the region were mired in losses after Wall Street's Dow Jones Industrial Average sank 4.73 percent on Wednesday after a raft of gloomy corporate news and the shift in the bailout strategy.

"It looks like world markets will take another leg down in the next few days," Goldman Sachs JB Were senior sales trader Patrick Crabb in Melbourne told Dow Jones Newswires.

"We passed through the eye of the hurricane and are now back feeling the full force of the storm."

Treasury Secretary Henry Paulson said the Wall Street bailout plan would be refocused on continued capital injections for ailing banks and possible steps to help the non-bank financial sector, such as car loans and credit cards.

"It is shocking to see the US government deciding not to use any of the 700 billion dollars on buying mortgage-related assets, which were the primary reason for the bailout package," Dariusz Kowalczyk, chief investment strategist at CFC Seymour in Hong Kong, wrote in a note to clients.

"Declining house prices and falling values of mortgage-related securities are the primary reason for the current crisis, and abandonment of attempts to tackle these problems head-on will prolong the recession."