HONG KONG: Asian stock markets pulled back Wednesday, sending Japan's benchmark down nearly 3 percent, after an overnight sell-off on Wall Street amid fears about the U.S. financial sector.

Selling across the region was broad, with banks, commodity producers and exporters taking big hits. Oil prices rebounded slightly to trade just above $68 a barrel, while the dollar weakened against the yen.

Investors were showing little appetite for risky assets after U.S. markets tumbled as rumors about escalating troubles in the banking sector revived concerns about the health of the financial industry and the economy as a whole.

After a powerful six-month rally, markets worldwide have started teetering, pressured by worries about diminished liquidity and lofty stock prices analysts say have gotten out of sync with economic fundamentals.

"People are a bit cautious. A lot of money has already flowed into the markets," said Lorraine Tan, director of equities research at Standard & Poor's in Singapore. "The question now for most investors is 'do I put more in at these levels or wait for it to correct more,' because there's uncertainty out there about the strength of the U.S. recovery."

Japan's Nikkei 225 stock average retreated 266.72, or 2.5 percent, to 10,263.34. Among the hardest hit stocks was memory-chip maker Elpida Memory Inc., slammed 17 percent after announcing plans to sell more than $800 million in new shares.

In Hong Kong, the Hang Seng lost 307.37, or 1.6 percent, to 19,564.93. Korea's Kospi was off 0.4 percent and India's Sensex edged down 0.1 percent. Australia's benchmark shed 1.8 percent.

Concerns about the Western financial sector were reinforced Tuesday by the head of Australia's central bank.

Reserve Bank of Australia Gov. Glenn Stevens warned that financial institutions needed to make more progress in restoring balance sheets weakened by the global economic downturn. This weakness "constitutes one of the main remaining risks to the global expansion," he said.

Overnight in the U.S., unsubstantiated rumors about growing bank losses, as well as an analyst downgrade of American International Group, led traders to dump financial shares, which have surged in recent weeks.

The Dow dropped 185.68, or 2 percent, to 9,310.60. The index is down 270 points, or 2.8 percent, since Friday, its biggest drop over three days since July 7, when it lost 341 points.

The S&P 500 fell 22.58, or 2.2 percent, to 998.04, while the Nasdaq composite index fell 40.17, or 2 percent, to 1,968.89.

Oil prices hovered above $68 a barrel Wednesday in Asia after a two-day plunge as a drop in U.S. crude inventories suggested demand may be recovering. Benchmark crude for October delivery was up 25 cents after losing $1.91 overnight.

The dollar fell to 92.86 yen from 92.93 yen. The euro was off at $1.4211 from $1.4219.