Asian stocks tumbled on Wednesday and the dollar plumbed a record low against the euro as investors fretted that growing problems in the U.S. subprime mortgage sector will spread to the wider economy.

Global markets were rattled on Tuesday after two leading rating agencies started to slash ratings for more than $17.3 billion of U.S. mortgage-related debt, raising concerns that the sector's woes are worse than previously thought.

Tokyo's Nikkei dropped more than 1 percent by the market's midday break on Wednesday, retreating further from a seven-year closing high reached on Monday.

Wall Street's weakness and a rise in the yen as the dollar fell spurred broad selling of shares, including Japanese exporters such as Sony Corp.

MSCI's index of shares elsewhere in Asia, which has risen to record high closes for six straight sessions, fell 0.75 percent.

From the perspective of liquidity, there is no market in the world that is not affected by the fallout of the subprime problem. Everyone is linked to this, said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

Liquidity has been driving hedge funds and private equity over the past few years. Problems have since surfaced with hedge funds. Now if there is a cloud emerging over liquidity, there is no global market that will not be impacted.

On Wall Street, the blue-chip Dow Jones industrial average and the tech-heavy Nasdaq Composite Index both slid more than 1 percent on Tuesday.

DOLLAR DIVES, TREASURIES RISE

The subprime news sent the dollar tumbling to a record low against the euro and Treasuries sharply higher.

The dollar's broad decline accelerated early in the Asian session, including against the yen, as investors cut back their exposure to higher-yielding but riskier assets.

Short positions in the yen may continue to be reduced and push dollar/yen further down toward 120 yen if a slide in global stocks extends, said Etsuko Yamashita, chief economist at Sumitomo Mitsui Bank.

A possible next theme which could hurt the stock market would be a disappointment in upcoming U.S. corporate earnings, Yamashita said.

The dollar fell to a one-month low against the yen of 120.99 on electronic trading platform EBS before pulling to back to 121.71 around 0145 GMT.

The yen has risen around 2 percent from Tuesday's intraday low to Wednesday's high.

The euro rose to a record $1.3787 against the dollar in early trade in Asia on EBS, before easing to 1.3741.

Sterling stabilized at $2.0262 but stayed near a 26-year high of $2.0282 hit the previous session, Reuters data showed.

Japanese government bond futures surged, tracking a rise in U.S. Treasuries as investors scampered to find less risky assets, but caution before the Bank of Japan's two-day policy meeting starting this session could cap the market's gains.

U.S. Treasuries rallied on Tuesday as the subprime mortgage worries prompted a flight to safety.

September 10-year JGB futures rose 0.58 point to 131.83.

The benchmark 10-year yield fell 6.5 basis points to 189.5 percent.

Australia's S&P ASX 200 fell 0.7 percent, as subprime woes dented financial stocks and a drop in base metal prices hit mining shares. BHP Billiton fell 2 percent while Rio Tinto shed 1 percent.

Seoul's benchmark index earlier hit its latest lifetime high -- the index's fifth intraday record in six sessions -- at 1,897.94.

The latest rise was led by shares such as KEPCO and Samsung Electronics. It later eased 0.2 percent from the previous session.

Hong Kong stocks fell 1.3 percent, Taiwan lost 1.3 percent, and Singapore slipped 0.4 percent.

But commodities markets shrugged off the slide.

Oil prices held steady near Tuesday's 11-month high, buoyed by fund flows and new Iranian tensions as traders waited to see whether U.S. oil stock data would help extend a two-week rally.

London Brent crude, currently seen as a better indicator of the global market, was down 0.2 percent on the day at $76.24 per barrel. It hit $76.63 on Tuesday, its highest since August 10.

Gold extended gains to $664.10 an ounce from $662.85 late in New York on Tuesday, when it touched its highest level in a month.

Nikkei 225