Asian markets fell sharply Tuesday on Wall Street’s weakness, with anxiety over U.S. housing and financial sectors deepening after investment bank Merrill Lynch & Co. announced a $5.7 billion loss from bad debt. A disappointing Toyota forecast also pulled down Japanese shares.

In Tokyo, the Nikkei 225 dropped 1.5 percent to close at 13,159.45 points. Every major benchmark in the region was trading lower by midafternoon.

Hong Kong’s blue-chip Hang Sang Index sank 2.4 percent to 22,149.32. Markets in South Korea and Shanghai were also off just under 2 percent. Taiwan’s main stock index closed down more than 3 percent.

Investors were distressed after Wall Street fell back into bear territory overnight, hit with more worries that souring U.S. housing and credit markets will slow the world’s largest economy _ a critical buyer of Asian-made goods _ and hurt bottom lines of regional firms.

The International Monetary Fund added to some of those fears with a report saying that “a bottom for the (American) housing market is not visible.” And Merrill Lynch’s massive write-down, a result of selling off risky mortgage securities and hedging contracts, was yet more evidence of financial troubles.

Regional banks, meanwhile, underscored problems closer to home. Merrill’s news came a day after Australia & New Zealand Banking Group Ltd., the country’s fourth-largest bank, announced a 1.2 billion Australian dollars ($1.1 billion) provision charge for bad debts and other write-offs.

“The credit crunch is still biting,” said Garry Evans, pan-Asian equity strategist with HSBC in Hong Kong. “That raises risk aversion and worries of a sharp slowdown in the U.S.”

In Japan, the market swooned after Toyota said Monday that it was lowering its global vehicle sales plan for this year to 9.5 million vehicles _ down from 9.85 million _ as the sluggish North American market slows the Japanese automaker’s momentum.

Toyota shares were down more than 2 percent in Tuesday trading.

In Hong Kong, banks dragged the market lower. Standard Chartered and Bank of China lost 3 percent each. Meanwhile, airliner Cathay Pacific retreated more than 4 percent as oil prices firmed.

Light, sweet crude for September delivery added 57 cents to $125.30 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract rose $1.47 to settle at $124.73 a barrel on Monday.

In currencies, the dollar gained against the yen to 107.45.