Asian stocks tumbled 3-7 percent on Thursday, with emergency actions by central banks and governments around the world failing to ease a financial crisis that has sent investors fleeing to government bonds.

The seismic shift on Wall Street this week continued to create a sense of global panic, with frenetic consolidation in the financial sector in the world's largest economy, sending the MSCI all-country world stocks index to its lowest since November 2005.

Investors piled into short-term US Treasuries, pushing yields down close to zero as investors bailed from money market funds. Even the Federal Reserve had to receive a $40 billion injection from the US Treasury to help it manage its balance sheet, after the Fed offered $85 billion in loans to rescue American International Group on Wednesday.

Overnight, No 2 US investment bank Morgan Stanley and top US savings and loan Washington Mutual were reportedly up for sale, and a source familiar with the matter said Britain's Lloyds TSB agreed to buy rival HBOS, reflecting the unstable landscape that has contributed to gold's 18 percent surge in the last week.

"Credit fears have now reached a climax. It's presumptuous to assume it would end in one day," said Harushige Kobayashi, head of research department at broker Securities Japan. "The market ignores fundamentals and is now 95 percent driven by psychological factors."    

The Chicago Board Options Exchange Volatility Index or VIX, Wall Street's main barometer of investor fear, closed on Wednesday at its highest level in almost six years.

Japan's Nikkei share average fell 3.6 percent to a three-year low early on Thursday, with shares in high-profile exporters such as Sony and Honda Motor Co the biggest drags.

The MSCI Asia-Pacific ex-Japan stocks index fell 3.9 percent to its lowest since July 2006. The index is down 39.3 percent so far this year.

Hong Kong's Hang Seng index dropped 6.6 percent to the lowest in two years, led by HSBC stock, down 5.9 percent. Industrial and Commercial Bank of China, which gave up its title of world's biggest bank to HSBC on Wednesday, saw its shares drop 12 percent.

Russia on Wednesday halted stock and bond trading on the country's MICEX and RTS exchanges as investors and dealers desperately liquidated positions for cash. It was not clear when the exchanges would open again.

Central banks in Japan and Australia pumped $17 billion into money markets to prevent banks of hoarding cash amid an environment of distrust and uncertainty.

Fear of the unknown has also pushed investors to government bonds, chasing safety above all else, even yield. US Treasury bill yields inched toward zero.

Investors are quickly learning that in the current crisis almost nothing is safe, even US money market funds. Late Wednesday, Moody's Investors Service sharply downgraded the Reserve Primary Fund after it fell below $1 a share in net asset value due to losses on debt issued by Lehman Brothers, which has filed for bankruptcy protection. - Reuters