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Asia Markets Tumble

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Asian markets slipped following Thursday's big falls in the United States and Europe. The normally insulated Chinese markets also dived before recovering, as nerves remain on edge over the worsening debt crisis in some European Union nations and the euro's big slide.

Asian stock markets fell sharply in early trading Friday as they reacted to continuing declines in Europe and on Wall Street.

The Nikkei 225 index in Japan lost 2.5 percent, and Singapore's Straits Times Index shed two percent.

In China, Shanghai's Composite index dropped nearly three percent early in the day but rallied and ended up just over one percent.

Chinese markets generally have been insulated from the affects of the European debt crisis and the struggling U.S. economy. Instead, over the past few months, they have been more affected by concerns that the government will clamp down on the high-flying property market.

But Michael Pettis, a finance professor at Peking University, says the jittery Chinese markets are starting to react to the weakening euro and concerns that Europe's problems will hurt the vulnerable U.S. economy.

As a result, he says, increased trade conflict is inevitable as Washington and Beijing respond differently to the European debt crisis and euro slide.

"What I don't think the Chinese fully appreciate yet is that in a world of contracting global demand, it's the deficit countries like those in the euro zone and the U.S that hold most of the cards. But I do think that because the U.S. and China require completely opposite responses to the crisis in Europe, and [that] these are going to make trade tensions much, much worse," said Pettis.

Many investors and economists worry that Greece and other economically vulnerable nations like Spain or Portugal will be unable to pay their debts despite an unprecedented and costly rescue effort by the European Union.

Financial reform legislation in the U.S. also has hurt the markets, because investors are concerned about how the reforms will affect earnings for banks and investment companies.

Markets in Hong Kong and South Korea were closed on Friday for a holiday, while trading in Thailand has been suspended because of the political violence in Bangkok.

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