Asia stocks tumble on global banking woes

HONG KONG (Reuters) - Asian shares slumped on Tuesday on concerns that increasing woes in the global financial sector will deepen the world's economic downturn, highlighting the difficulties confronting incoming U.S. President Barack Obama.

The tumble came after Royal Bank of Scotland on Monday unveiled the biggest loss in U.K. corporate history, and after Britain launched a second bank rescue plan that failed to restore confidence in the wobbly financial sector.

Sterling fell to its lowest in almost seven years and the euro dropped to a six-week low, while U.S. stock futures slumped, signaling a potentially tough day ahead for Wall Street.

The spreading caution benefited assets seen as safer, such as the Japanese yen and regional bonds.

"The market is refocusing on the bigger global picture," said Justin Gallagher, head of Sydney sales trading at ABN AMRO, pointing as well to expectations for weak corporate earnings results in coming weeks.

"Clearly the market today continues to factor in more disappointment and certainly, despite the inauguration of Obama ... the market is looking past that now and realizing just how big a mess the global economy is in," he said.

The MSCI index for Asia-Pacific stocks outside Japan slid 3 percent as of 0240 GMT, close to the 2009 low. The index is now down nearly 9 percent so far this year, after it fell in 2008 by 53 percent -- its biggest decline on record.

The revival in risk aversion is reining in a rally in Asian shares that had seen the MSCI index surge as of January 7 by 37 percent from five-year lows hit in late November.

Asian banking shares from HSBC <0005.HK> to Japanese top lender Mitsubishi UFJ Financial Group <8306.T> were among the leading decliners in the region as worries intensify about a sector facing more credit and loan-related writedowns.

Japan's Nikkei dropped 3.1 percent. Indexes in Hong Kong and Australia fell more than 3 percent, while markets in South Korea , Taiwan and Singapore