HONG KONG,CHINA - ASIAN governments from South Korea to Indonesia stepped in swiftly on Tuesday to try to prop up markets reeling from an overnight plunge in the United States after US lawmakers rejected a $700 billion plan rescue plan for the financial industry.

Throughout the region, finance authorities and central banks spoke up to defend the soundness of their economies and acted by tightening stock-selling rules and buying tumbling currencies hurt by the flight of money from emerging markets.

In Taiwan, the president, vice-premier, central bank and financial regulator made moves and comments to ease jittery markets.

India's finance minister, Palaniappan Chidambaram, stepped in to assure investors that market regulations would be tightened if needed.

'There is nothing to worry about. The regulations that are in place are adequate. If the regulations are to be tweaked, we will do so,' he told reporters.

Malaysian Deputy Prime Minister Najib Razak said the government was maintaining its growth forecast of 5.5-5.8 per cent for the year, adding the country was on track with opening its markets despite the Wall Street collapse.

Among Asia's financial market watchdogs, Taiwan's top financial regulator placed tighter limits on the short-selling of stocks, while Hong Kong's Securities and Futures Commission warned it would not tolerate abusive practices and could impose market-wide controls.

Outright bans

Other governments moved to outright bans.

Indonesia's stock exchange said it would prohibit short selling of stocks in October, and South Korea said it would do so for the time being while at the same time increasing the amount of shares firms are allowed to buy back.

The restrictions or outright bans on short selling follow similar actions by US and European regulators this month, and come as Asian stocks head in September for their biggest monthly slide since the financial crisis a decade ago.

The failure on Monday of Washington's biggest and most comprehensive bid to keep financial sector shockwaves from tearing up the real economy handed the US S&P 500 stock index its biggest decline since October 1987 and the Dow Jones industrial average its biggest points fall on record.

Asian stocks suffered heavily in September, victims of a sell-first-and-ask-later mentality among global investors. With risk aversion widespread, emerging market holdings have been among the first to be sold, analysts have said.

The MSCI index if Asia-Pacific stocks outside Japan is down about 16 per cent in September, similar to the slide seen in the same month eight years ago and potentially its largest decline since October 1997.

'Despite the fact that the US is at the centre of the crisis, every time the crisis escalates, capital leaves emerging Asia,' said Citigroup analysts in a note to clients on Tuesday.

'This is probably a result of flight to quality. But it also provides strong evidence (that) refute the so-called decoupling thesis,' they added.

The tighter rules on short-selling, combined with expectations that US lawmakers will eventually approve a rescue plan helped many Asian stock markets pull back from their day's lows, but analysts expect broad risk reduction to continue as investors pull money out of the region.

Currencies under fire

Asian currencies have also come under fire this month.

The South Korean won dropped 1.5 per cent on Tuesday, bringing its loss for September to 9.8 per cent, its biggest monthly percentage loss since December 1997. Its loss for the year so far is well over 20 per cent.

The falls on Tuesday came despite some talk over dollar-selling intervention by the foreign exchange authorities and even after the Finance Minister said the country would spend part of its foreign exchange reserves to stabilise markets if necessary.

South Korean authorities have spent more than $30 billion this year to try to underpin the won.

Other governments also moved to support their ailing currencies. The Philippine central bank sold dollars on Tuesday to prop up the peso, while the Bank of Thailand intervened on the baht to keep its moves in line with other Asian currencies though it did not specify which action had been taken. -- REUTERS