Asian markets headed sharply lower early on Thursday over mounting concerns about the health of Europe’s banks and France’s debt rating.

Japan’s Nikkei 225 index sank 1.8 per cent to 19,319.43, wiping out gains of the previous day. South Korea’s Kospi index lost 2.3 per cent to 1,764.66 and Hong Kong’s Hang Seng index stumbled 2.5 per cent.

On Wall Street, the Dow Jones industrial average closed down 519 points, with selling largely spurred by worries about Europe. American bank stocks took hits because investors fretted that debt problems overseas might reach the United States.

France came under pressure amid concerns that it could follow the U.S. and become the next country to lose its top AAA rating. Standard & Poor’s rating agency stripped the U.S. of its AAA credit rating late last week, sending global stocks into a tailspin.

On Tuesday, the Federal Reserve said it planned to keep interest rates ultra-low for two more years since it sees almost no chance that the U.S. economy will improve substantially by 2013.

The Dow closed Wednesday at 10,719.94, down 4.6 per cent for the day. By points, it was the ninth-steepest decline for the market. The S&P 500 finished the day down 4.4 per cent and the Nasdaq composite index down 4.1 per cent.

In Asia, meanwhile, a key concern is that higher inflation in China could lead to slower growth.

Inflation in the world’s second-largest economy rose to a 37-month high in July, adding to pressure on Chinese leaders to cool living costs while keeping economic growth on track as the U.S. and European outlook worsens.

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