Sept. 30 (Bloomberg) -- Asian leaders urged U.S. lawmakers to pass a financial rescue package after a $700 billion plan collapsed in Congress yesterday, pledging to provide liquidity to banks and take any action necessary to ensure stability.

``The entire world is taking measures against a system meltdown,'' Japan's Prime Minister Taro Aso told reporters in Tokyo today, after central banks in Australia and Japan injected more than $30 billion into their banking systems. South Korea's Finance Minister Kang Man Soo said his government is ready to use its foreign exchange reserves to stem a decline in the won.

The reassurances underscore concern the financial panic that erased $1.2 trillion from the value of U.S. stocks yesterday will trigger a global recession. Asian stock markets extended the rout today before recovering some of their losses.

``There's just no way to insulate Asia's economy from what's happening in the U.S.,'' said Robert Dujarric, director of the Institute of Contemporary Japanese Studies at Temple University's Japan campus. ``The political ramifications are not good for Asian governments.''

Japan, the world's second-largest economy, may already be in a recession as industrial production fell at the fastest pace in at least five years in August. Aso, the nation's third leader in a year, is bidding to preserve the ruling Liberal Democratic Party's half-century hold on power in elections that may come as early as next month.

Voters Blame

``Even if most of the `blame' lies in Washington, the average Japanese voter will blame the LDP,'' Dujarric said. As for China, ``they don't have elections but economic growth is one of, perhaps the key, to the legitimacy of the Communist Party.''

Hong Kong Chief Executive Donald Tsang and Australian Prime Minister Kevin Rudd attempted to reassure investors that their economies and regulatory systems are sound.

``Hong Kong has accumulated considerable experience over the past 10 years in overcoming the Asian financial crisis,'' Tsang said in the city, adding that he will take ``prompt, appropriate'' action to bolster the economy.

Rudd, warning of ``significant'' consequences from a failure to tackle the U.S. financial crisis, said regulators and the Reserve Bank of Australia will do what is required to provide liquidity.

Australia's banking system is ``fundamentally different'' to that of the U.S. because of stronger regulation and fewer investments in subprime mortgages, he said.

Asian Shares

The MSCI Asia Pacific Index of regional shares was down 3.1 percent as of 4:55 p.m. Hong Kong time, after earlier plunging as much as 4.1 percent. On Wall Street, the Standard & Poor's 500 Index tumbled the most since the 1987 crash yesterday after the House of Representatives rejected the Bush administration's bailout proposal.

Australia extended a ban on short selling, following similar moves in the U.S., U.K., Germany, France and Belgium. Short selling is the sale of stock borrowed from shareholders. People who sell short hope to profit by repurchasing the securities later at a lower price and returning them to the holder.

South Korea and Indonesia today banned short selling while Taiwan tightened curbs on the practice. South Korea will also ensure that smaller companies ``don't go bankrupt even as they post profits,'' Finance Minister Kang said.

``The government has a contingency plan ready in case we need it,'' Kang said. ``But I don't think we need to make public the contingency plans, which are for a more pessimistic situation.''

Thailand, Philippines

Thai Prime Minister Somchai Wongsawat and Philippines Budget Secretary Rolando Andaya said their countries were preparing plans to deal with the turmoil.

Rudd's call for U.S. action followed U.K. counterpart Gordon Brown, who said yesterday he had ``sent a message to the White House about the importance that we attach to taking decisive action in America.''

``It's unprecedented for Asian leaders to start trying to heavy hand the Congress,'' said John Hart, an Australian National University professor who specializes in U.S. elections and politics. ``The problem is these leaders want to keep confidence in their banks.''

To contact the reporters on this story: Gemma Daley in Canberra at gdaley@bloomberg.netToko Sekiguchi in Tokyo at Tsekiguchi3@bloomberg.net

Last Updated: September 30, 2008 04:58 EDT