March 17 (Bloomberg) -- Mitsubishi UFJ Financial Group Inc. led Asian banks lower after JPMorgan & Chase Co. bought Bear Stearns Cos. for less than a 10th of its market value and the Federal Reserve cut its discount rate at an emergency meeting.

The MSCI Asia Pacific Financials Index slumped 3.7 percent in Tokyo to an almost two-year low. Japanese banks fell, paced by Shinsei Bank Ltd., which declined 11 percent. Babcock & Brown Ltd., Australia's second-largest investment bank, plunged 10 percent in Sydney.

Financial stocks tumbled as Bear Stearns's sale raised the specter of more collapses in an industry wracked by almost $195 billion in writedowns and losses related to U.S. mortgages. Carlyle Group's publicly traded mortgage bond fund said today it will apply to be liquidated after defaulting on about $16.6 billion of debt.

``There is a lot more pain to come,'' said Ed Rogers, chief executive officer of Rogers Investment Advisors Y.K. in Tokyo. ``This is nowhere close to salvation for the financial system. The root problems are not being addressed.''

Australia's 49-member S&P/ASX 200 Finance Index fell 4.4 percent to close at 4,661.6 in Sydney. National Australia Bank Ltd., the country's biggest by assets, dropped 2.9 percent to A$26.85. Commonwealth Bank of Australia, the largest mortgage provider, lost 6.1 percent to A$37.35 while Macquarie Group Ltd., the biggest investment bank, fell 6.3 percent to A$44.50.

Japanese Banks

Japan's 85-member Topix Banks Index dropped 4 percent to 226.88, the lowest in four years. Mitsubishi UFJ, the country's largest bank, fell 4.6 percent in Tokyo, and Sumitomo Mitsui Financial Group Inc., the second-largest bank by market value, declined 3.4 percent.

Tokyo-based Shinsei Bank slashed a forecast for full-year operating profit last week, citing $100 million in fourth- quarter charges for investments tied to U.S. mortgages. Shinsei today had its biggest drop since going public four years ago, falling to 337 yen in Tokyo trading.

``Bear Stearns has minimal direct exposure to Asia, but investors are concerned about what it means for the wider credit crisis and whether more will follow,'' said Tom Murphy, who manages more than $1 billion in Asian assets at Deutsche Bank AG in Sydney.

Chinese Banks

Industrial & Commercial Bank of China Ltd., the world's largest by market value, dropped 5.5 percent in Hong Kong. Bank of China Ltd., the nation's third largest, fell 4.5 percent.

``The subprime crisis hasn't bottomed out yet,'' Bank of China Chairman Xiao Gang said in Beijing today. ``The market expects further rate cuts by the Fed.''

Indian financial stocks declined with the rest of the region. ICICI Bank Ltd., which disclosed a $264 million value loss in its overseas portfolio earlier this month, fell 10 percent to 789 rupees at 2:32 p.m. in Mumbai. State Bank of India, the nation's largest, declined 5.6 percent to 1,618 rupees.

Bear Stearns tumbled 47 percent to $30 a share in New York on March 14 after JPMorgan, backed by the Federal Reserve, provided the company with a 28-day emergency line of credit as speculation about its financial soundness prompted customers and creditors to withdraw $17 billion of assets.

JPMorgan said it will buy the troubled company for about $240 million, or $2 a share.

The Federal Reserve reduced the rate on direct loans to commercial banks today to 3.25 percent and said it will allow primary dealers to borrow at the rate in exchange for a ``broad range'' of investment-grade collateral.

To contact the reporter for this story: Stuart Kelly in Sydney skelly22@bloomberg.net

Last Updated: March 17, 2008 05:12 EDT