HONG KONG (MarketWatch) -- Stocks slumped throughout the Asia-Pacific region Wednesday, with Japan's benchmark Nikkei 225 ending 2.9% lower after Wall Street's sharp sell-off and the yen's strengthening against major currencies.

Shares in Hong Kong, China and throughout the Asia-Pacific region also posted sharp declines. And some analysts suggested the downtrend isn't over yet.

"We are seeing a domino effect; the consolidation looks like it might continue for a while until the problems in the U.S. are resolved," said Alex Tang, head of research at Core Pacific-Yamaichi in Hong Kong.

Tokyo's 225-issue Nikkei average (1804610) declined 501.95 points to 16,676.89. The finish was its biggest single-day point drop and lowest closing level since March 5, when the benchmark swooned 575.68 points to 16,642.25.

The broad-market Topix index closed 2.9% lower, or 50.49 points, to 1,674.94.

Big losses on Wall Street for all the major U.S. indexes, along with growing uncertainty about the U.S. economy -- particularly in the housing sector and in the subprime lending market -- weighed on stock markets throughout the region.

Analysts said the downward momentum in Tokyo was fueled by futures-related selling and a lack of buying from institutional funds in the wind-down to the fiscal year-end.

"Stocks have been caught in downward selling spiral, and volume has been much lower this week," said Yoji Takeda, head of Asian Equity Management at RBC Investment Management Asia. "Usually domestic investors should be buying, but this is really close to the end of the fiscal year, so they can't really move."

Hong Kong, China shares weaker

Hong Kong's Hang Seng Index (1804580) ended 2.6% lower at 18,836.93. The Hang Seng China Enterprises Index, a gauge which tracks Hong Kong-listed shares of mainland companies, fell 2.9% to 9,002.48.

Core Pacific's Tang said he was concerned that problems in the U.S. subprime-mortgage market could catalyze a wider credit contraction, resulting in slowing growth in the world's largest economy and Asia's most important export market.

"The market will remain quite volatile in the short term," he said. "We are not expecting any major rally or comeback because of these overhangs."

Tang said he expects the Hang Seng to find support at the 18,000 level.

Shares of Nikko Cordial (8603) closed 13% higher after Citigroup C, -2.12% said Tuesday it would sweeten its buyout offer by 26% to 1,700 yen a share, bringing its bid for all shares of Japan's third-largest brokerage to $13.4 billion.

The revised offer follows the decision by the Tokyo Stock Exchange and other Japanese exchange operators not to delist Nikko Cordial following an accounting scandal that came to light in December.

The U.S. dollar fell into the upper-115-yen area late Wednesday in Tokyo, reversing a mild rebound throughout the day after coming under strong selling pressure overnight.

Mortgage woes continue

Shares of HSBC Holdings Plc (5) HBC, +0.48% fell 1.5%. Earlier this month Europe's largest bank reported 2006 pretax profit in its U.S. personal-banking division fell $725 million, owing to rising loan defaults.

The U.S. Mortgage Bankers Association said on Tuesday that the rate of homes entering the foreclosure process in the fourth quarter hit a record 0.54% and the delinquency rates on U.S. home loans rose to 4.95% from 4.67% in the preceding quarter. Delinquencies among subprime mortgages, or those offered to poorer borrowers with lower credit scores, increased to 13.33%, up from 12.56% in the preceding quarter.

Elsewhere in Asia, Australia's S&P/ASX 200 ended 2.1% lower, and in Seoul the Kospi fell 2%. Singapore's Straits Times Index closed down 3.4%, Taiwan's Weighted Price Index was down 1.5% and New Zealand's NZX-50 index closed down 1.3%.

Thailand's SET Index was down 0.7% and Malaysia's KLSE shed 2.8%. India's Bombay Sensex was 3.2% lower in late trading while Indonesia's JSX Composite closed 2% lower.

China's Shanghai Composite Index declined 2.8%.

China's retail sales rose 14.7% in the first two months of the year, up from a 12.5% gain in the same period a year earlier, government data showed Wednesday.

Exporters hit again

Japanese export-related shares declined for a second session on concerns that overseas earnings could be crimped by the more valuable yen. A stronger Japanese currency makes exporters' goods more expensive overseas while lowering the value of overseas sales when they are converted back into yen.

Shares of consumer electronics giant Sony Corp. (6758) SNE, +0.25% ended 4.1% lower, while Toyota Motor (7203) TM, -1.29% shares slid 3.2%.

Within the technology sector, shares of camera and chip-equipment maker Nikon Corp. (7731) fell 3.9%.

Shares of South Korea's Samsung Electronics SSNGY, finished with a loss of 2.7%.

Mitsubishi Heavy Industries (7011) gained 1.9% after the Nikkei daily reported the group had been selected for a $600 billion yen ($5.2 billion) contract to provide two nuclear reactors to U.S. power plant operator TXU TXU.

The deal will see two advanced pressurized-water units installed at TXU's nuclear facility in Dallas. The reactors are expected to come on line as early as 2015, the report said.

Quick sell-off or protracted decline?

Shares of Hong Kong Exchanges & Clearing Ltd., (388) operator of the city's stock and futures exchanges, tumbled 4.9% as investors reduced positions amid concerns the sell-off could just be the start of a protracted market decline.

China Life Insurance Co. (2628) LFC, +0.17% led declines among mainland financial shares on worries authorities could take steps to cool the economy after data showed inflation accelerated in February.

China's consumer price index rose an annualized 2.7% in February from the year-earlier period, up from 2.2% rise in January, government data showed Tuesday.

Shares of China Life fell 4.2% while Industrial & Commercial Bank of China (1398) fell 3.2%.

Property stocks led declines among blue chips. Shares of Hang Lung Properties (101) HLPPY, -0.70% fell 5.3%.

Oil prices rose 23 cents to $58.16 a barrel in Asian electronic trading. The front-month April contract fell 98 cents to close at $57.93 a barrel in Tuesday's trading on the New York Mercantile Exchange.