HONG KONG, Asian equities sank Monday following a sell-off in New York on fears over the financial sector, with traders giving short shrift to news of UBS’s takeover of embattled Credit Suisse and central bank pledges to provide liquidity to troubled lenders.

The losses came ahead of the Federal Reserve’s latest policy meeting this week, with speculation mounting that it will pause its interest rate hikes in order to provide some stability to markets.

The collapse earlier this month of regional lenders Silicon Valley Bank, Signature Bank and Silvergate has sparked fears of contagion across the industry as worried customers withdraw their cash.

The crisis led US authorities last week to promise support for other lenders and depositors, in a move aimed at preventing a run on banks.

Also, Wall Street titans including JP Morgan, Bank of America and Citigroup pledged to inject $30 billion into under-pressure lender First Republic Bank.

However, fears of another financial crisis flared again when the biggest shareholder in Credit Suisse, Switzerland’s second-biggest bank, said it would “absolutely not” up its stake a day after its annual report cited “material weaknesses” in internal controls at the firm.

The lender later announced it would borrow nearly $54 billion from the nation’s central bank to provide “support”.

But that was not enough to lift confidence and on Sunday UBS – Switzerland’s biggest bank – said it would buy the firm for $3.25 billion following crunch talks in hopes of stopping a wider international banking crisis.

The deal was vital to prevent economic turmoil from spreading throughout the country and beyond, the government said.

The move was welcomed in Washington, Frankfurt and London.

Meanwhile, the Fed and the central banks of Canada, Britain, Japan, the European Union and Switzerland said they would launch a coordinated effort Monday to improve banks’ access to liquidity, hoping to calm worries.

Focus on Fed decision

But Asian traders tracked Friday’s losses in New York and Europe.

Hong Kong fell 3.5 percent, with heavyweight HSBC off more than six percent on worries about its exposure to risky bonds related to Credit Suisse.

Standard Chartered was down a similar amount and Hang Seng Bank lost more than two percent.

The losses came even as the city’s de facto central bank said its banking sector had “insignificant” exposure to Credit Suisse. Japan’s government also said the country’s “financial organisations on the whole have ample liquidity and capital, and the financial market is stable overall”.

France’s central bank chief said Credit Suisse woes “don’t concern” European banks.

Other regional bank shares also hit, with Japan’s Mitsubishi UFJ Financial, National Australia Bank and India’s ICICI down more than one percent each.

Tokyo, Sydney, Seoul, Singapore, Taipei, Wellington, Manila, Mumbai and Jakarta were well in the red.

Shanghai rose after the Chinese central bank cut the amount of cash banks must keep in reserve, hoping to boost the country’s economy.

Futures in the United States and Europe reversed earlier gains.

“Investors are likely keeping a look over their shoulder for the next disaster in a high-interest rate (and inflationary) environment, so at best we might see markets recover some of last week’s losses,” said Matt Simpson at City Index.

Traders are now nervously awaiting the Fed’s next policy meeting, which ends Wednesday.

They were already in a downbeat mood before the latest crisis erupted as they contemplated more rate hikes to rein in stubbornly high inflation.

There is a debate about whether it will continue lifting as the collapse of SVB has been widely linked to the sharp rise in borrowing costs over the past year.

Some observers expect at least one more increase but possibly a hold afterwards, while there is a growing belief that cuts could be announced before the end of the year, despite prices still rising faster than the Fed would like.

But Gerard MacDonell of 22V Research said: “It is not at all clear that avoiding a rate hike would even help address the financial troubles in the banking system.

“For the Fed to hold off on Wednesday might send a signal of panic. It might also lead to a further intensification of inflation pressures and more bond market volatility down the road.”

And SPI Asset Management’s Stephen Innes added: “The more policymakers do, the more investors expect bad news to come down the pipe, which creates a horrible negative feedback loop, almost as if investors are asking themselves, ‘what t do they know we do not know?’”

Data showing that bank borrowing from the Fed’s discount window hit a record high of more than $150 billion for the week ending March 15 indicated stress in the sector, analysts said.

Oil prices extended the big losses suffered last week on worries about demand as traders fret over a possible recession.