HONG KONG (AP) -- Asian markets tumbled on Thursday as Hong Kong stocks fell more than 4 percent and Chinese stocks were down 6.5 percent amid mounting worries over the likely impact of a U.S. recession on China's own booming economy.

The benchmark Shanghai Composite Index was trading at 3,561.06 by late morning Thursday, down 6.5 percent to 3,516.33. Hong Kong's blue chip Hang Seng index fell 4.4 percent to 20,896.14 after the market opened Thursday.

Elsewhere in Asia, South Korea's Kospi Composite Index fell about 1.6 percent. Japanese markets are closed for the Vernal Equinox holiday.

The Asian markets tracked weakness on Wall Street, where the Dow Jones industrial average fell 2.4 percent to 12,099.66 Wednesday.

The decline on Wall Street overnight, where the Dow Jones Industrial Average fell 2.4 percent, added to jitters over the U.S. economic outlook, analysts said.

Gold miners also led the decline after prices fell on overseas markets, with Zhongjin Gold hitting the daily 10 percent downside limit at 171.85 yuan.

The decline on Wall Street on Wednesday also reflected investors' continuing uneasiness about the world's financial system and the U.S. economy.

Talk swirled about whether further write-downs are in the offing after Merrill Lynch filed a lawsuit against a company involved in a debt transaction with the investment bank. Merrill claimed in the litigation that Security Capital Assurance owed it up to $3.1 billion after backing out of financial transactions.

News that the government plans to free up billions of dollars at Fannie Mae and Freddie Mac, a move that could help struggling homeowners, for a time helped quell some of the market's fears. But it couldn't stave off selling late in the session by investors who have seen big advances evaporate many times during the course of the credit markets crisis and decided to preserve some of their gains.

Investors sent stocks charging higher Tuesday on stronger-than-expected investment bank results and several moves from the Federal Reserve in recent days, including a 0.75 percentage point rate cut aimed at jump-starting the credit markets. The Dow had its second 400-plus point gain in six sessions.

George Shipp, chief investment officer at Scott & Stringfellow, said some investors are still uneasy about the health of the markets. He said back-and-forth days will likely continue as Wall Street tries to feel its way forward.

"Nobody wants to make the first move. There is liquidity on the sidelines. It doesn't really know what to do right now," he said, adding that investors are trying to determine whether moves by the Fed and other regulators to stimulate the economy and stabilize the markets will take hold.

"Clearly there is fear. I would say the needle is pointing more toward fear than greed right now," he said.

According to preliminary calculations, the Dow on Wednesday fell 293.00, or 2.36 percent, to 12,099.66.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 32.32, or 2.43 percent, to 1,298.42, and the Nasdaq composite index fell 58.30, or 2.57 percent, to 2,209.96.

Bond prices jumped as investors again looked for safety. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.37 percent from 3.50 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices fell sharply.

The concerns over the health of the financial system and the economy overshadowed upbeat results from Morgan Stanley, whose earnings indicated that the bank is relatively healthy like Lehman Brothers Holdings and Goldman Sachs. Investors have been nervous in recent days about even big banks after JPMorgan Chase struck a deal Sunday to acquire Bear Stearns, which was on the verge of succumbing to credit troubles.

Investors' relief over Morgan Stanley follows better than expected earnings news from Lehman and Goldman on Tuesday that gave the Dow its biggest point gain in more than five years. The Dow got an extra boost after the Fed's rate cut.

The Office of Federal Housing Enterprise Oversight, which oversees government-backed Fannie and Freddie, said the changes should result in an immediate infusion of up to $200 billion into the market for mortgage-backed securities. This could mean greater demand for mortgages -- an aid for struggling homeowners hoping to refinance at more favorable terms.

The Fed has slashed key rates by more than half since last summer, when the mortgage crisis claimed its grip on the global credit markets. But the housing and lending industries are still hurting.

Late Tuesday, Visa launched the largest initial public offering in U.S. history, selling 406 million shares at $44 apiece to raise $17.9 billion. The world's largest credit card processor is not a lender, and many investors are betting that it will easily survive the faltering U.S. economy and credit climate. The stock traded up $12.50, or 28 percent, at $56.50.

Declining issues outpaced advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.97 billion shares compared with 1.95 billion shares traded Tuesday.

The Russell 2000 index of smaller companies fell 17.80, or 2.61 percent, to 664.13.