Investors in Europe were also in a negative mood, with stock futures and financial bookmakers pointing to sharp opening declines for Britain’s FTSE 100, the German Dax and the French CAC 40.

But flight to safety boosted government debt, driving the 10-year yield for Japanese bonds to a one-month low and helping gold claw off the session trough to within easy reach of a 28-year high set Friday.

Traders said shares took their cue from Wall Street, which notched up its biggest fall in two months on Friday, a slide made more unnerving as it marked the 20^th anniversary of ’Black Monday’, the 1987 stock market crash.

The dollar was also sold after the tumble in US stocks and following the Group of Seven’s apparent indifference over the weakness of the currency. The finance ministers and central bank heads of the G7 countries met in Washington on Friday.

“The G7’s statement effectively gives a green light to continue selling the dollar,” Michael Woolfolk, senior currency strategist at the Bank of New York Mellon, said over the weekend.

At 0618 GMT, MSCI’s measure of Asia Pacific stocks excluding Japan had lost 2.3 percent, its steepest fall since Aug. 16, while Tokyo’s Nikkei fell 2.2 percent to a four-week closing low.

Exporters down

Weak US results and comments from Caterpillar, the worlds top maker of earth-moving construction and mining equipment, set the downbeat tone.

In the strongest comments yet suggesting the housing slump was spreading to other parts of the US economy, Caterpillar said on Friday several key US industries it serves were in recession.

“It appears investors were panicked by what was seen as the first tangible evidence that the housing slump and credit market crisis were negatively impacting growth in the broader economy,” said Guy Hutchings, chief executive officer at MFS Investment Management in Australia.

Exporters bore the brunt of the selloff, hurt by the double-whammy of a weaker dollar and growing worries about the health of the US economy, the region’s top export destination.

A falling dollar makes exports from Asia relatively more expensive and lowers the value of overseas sales, factors that further undermined some of the region’s major exporters.

Honda Motor dropped 2.1 percent, Canon Inc lost 1.0 percent and Hyundai Motor fell 1.5 percent.

Banks, which have been weighed by worries about a global credit squeeze, were also hit.

Australia’s Macquarie Bank, South Korea’s Kookmin Bank, Hong Kong’s HSBC and Singapore’s DBS all lost ground.

Adding to investors woes, energy stocks such as INPEX Holdings and oil-and-gas producer Woodside Petroleum were not spared after oil extended its decline.

Investors cashed in on crude’s recent rally to a record high above $90 a barrel, but simmering geo-political tensions and the weak dollar meant that further downside was likely to be limited.

US crude fell 65 cents to $87.95.

Among individual stocks, Australia’s Aristocrat Leisure slumped 14.6 percent after the gaming machine maker disappointed investors by saying it expected 2007 profit to be in line with last year.

Dollar sinks

The dollar hit a record low against a basket of major currencies and carved out a six-week low near 113.20 yen before recovering slightly. The euro jumped to a record high of about $1.4350.

The low-yielding yen also firmed against the euro as it tends to benefit from risk aversion because it is often used as the funding currency for high-yield investments. So when those are reversed, the investors buy back into the yen.

“We didn’t see any surprises from the G7, and weak stocks are continuing to drag on the dollar,” said Hideaki Inoue, forex manager at Mitsubishi UFJ Trust and Banking.

“Risk aversion is a big driver at the moment.”

But weakness in equities boosted safe-haven Japanese government bonds (JGBs). The yield on the benchmark 10-year JGBs fell 2.5 basis points to a five-week closing low of 1.575 percent.

Spot gold rose above $760 an ounce after steadying from a slide to $754 and was not far off a peak of $770 set on Friday.