The Indian stock market fell sharply in the morning but recovered in the afternoon to close not much lower than on Monday. Leading the pack of losers was ICICI Bank, whose stock fell 5.7 per cent to Rs. 591.65. The bank said it was providing another $28 million (about Rs. 140 crore) to cover potential losses from its U.K. unit that holds bonds issued by Lehman Brothers.

The rupee fell to Rs 46.90 a dollar, its lowest level in two years, following worries over capital outflows from share sales by foreign institutional investors. And the Reserve Bank asked Lehman Brothers’ NBFC and primary dealer arms not to remit money in forex without its approval.

Dollar borrowing rates in the London market, or LIBOR, doubled overnight to 6.44 per cent, the highest on record. This happened as banks accumulated cash in anticipation of more failures of financial institutions. The central banks of the U.K., Switzerland and Japan, and the European Central Bank (ECB), pumped huge funds into the system in a bid to cool it down.

The ECB injected €70 billion. The Bank of Japan pressed in $24 billion as worries mounted over the position of Aozora Bank, which holds counterparty positions with Lehman Brothers that analysts feared may not be honoured now. In the U.S., the Federal Reserve injected $50 billion of liquidity to help stressed markets.

Stock markets in Asia, most of which remained closed on Monday, promptly picked up the scars on Tuesday. Every single market closed down sharply: the steepest losses were seen in South Korea (down 6.1 per cent), Hong Kong (5.4 per cent), Japan (5 per cent) and China (3.7 per cent). Taking their cue from the financial markets, commodities went into a tailspin, with crude oil leading the plunge. Crude was trading at $91.73 a barrel, down $3.98 from Monday.