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Asian policy makers, whose banking industries have largely averted the crises in U.S. and Europe, said they are monitoring developments in the world's biggest economy to ensure minimal impact on their financial systems.

Lehman Brothers Holdings Inc. plans to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm. Bank of America agreed to buy Merrill Lynch & Co., the world's largest brokerage firm, for about $50 billion.

Asian stocks, U.S. futures and the dollar tumbled as Lehman prepares for liquidation, deepening a crisis that threatens to tip the global economy into a recession. Financial institutions worldwide have reported more than $500 billion in losses and writedowns and the credit-market collapse has erased $11 trillion from global stocks in the past year.

“Some people say Lehman may not be the last case, there may be more to come,'' Thailand's Finance Minister Surapong Suebwonglee said in an interview. “We will monitor the situation closely.''

Markets in Japan, South Korea, China and Hong Kong are closed for holidays today. Stock indexes declined by more than 1.5 percent in Australia, Singapore and Taiwan. The MSCI Asia Pacific excluding Japan Index lost 1.3 percent.

The Federal Reserve widened the collateral it accepts for emergency loans to securities firms, and a group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. separately formed a $70 billion fund to ensure market liquidity.

Market Jitters

The Reserve Bank of Australia said it injected additional cash into the financial system amid concern credit market jitters may deter banks from lending to each other. The central bank added A$2.1 billion ($1.7 billion) through so-called repurchase agreements today, according to its Web site. Last week, the bank provided a daily average of A$982 million.

Asian sovereign wealth funds and other Asian financial institutions have been increasing their investments in U.S. and European banks that were forced to restore depleted capital after they wrote down investments tied to the U.S. subprime- mortgage meltdown.

Government of Singapore Investment Corp free credit report without a credit card. has injected funds into Citigroup Inc. and UBS AG, while China Investment Corp. invested in Morgan Stanley. Merrill Lynch raised capital from Korea Investment Corp. and Singapore's Temasek Holdings among others.

`Japan-Like' Stagnation

The world may face “Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Tony Tan, deputy chairman of Government of Singapore Investment Corp., said yesterday.

“If house-price declines are significantly greater than expected, larger financial institutions could become insolvent, the credit crunch would be more severe and economic growth could weaken considerably,'' Tan said. “A vicious deflationary cycle with falling house prices, failing financial institutions and weaker growth could then ensue.''

The worst U.S. housing slump since the 1930s is showing little sign of abating and more than 10 lenders in the world's No. 1 economy have collapsed this year.

The U.S. Treasury Department and the Federal Housing Finance Agency this month seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies.

`Closely Monitoring'

The Bank of Japan said it's keeping in touch with other central banks around the region.

“We are closely monitoring the moves of Asian markets and trying to figure out how these developments will affect the Japanese market,'' said Bank of Japan's chief press officer Yoshihiro Sugimoto.

Sri Lanka's central bank said it changed its “investment patterns'' as the subprime crisis unfolded and cut its exposure to Lehman during that time.

“Lehman acted as primary dealers for very few government securities investments,'' said Priyanthi Liyanage, director of international operations at the Central Bank of Sri Lanka. “We used to invest in capital markets through these banks. We have no exposure to Lehman now.''

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