Financial shares dragged Asia Pacific stock markets lower on Thursday. Worries about further credit crisis-related losses deepened after profits dropped by a quarter at Babcock & Brown, the Australian investment bank. China shares fell the most, reversing much of Wednesday’s 7.6 per cent surge, and Hong Kong made its worst close for a year.

The MSCI Asia Pacific Index had lost 0.7 per cent to 122.59 by late afternoon in Tokyo.