Asian stock markets tumbled Friday, a day after U.S. President Barack Obama proposed a sweeping overhaul of Wall Street banks to avert future financial crises. European shares opened modestly lower.

Losses spread across most Asian markets and sectors in the region following Thursday's  retreat in the U.S.

Oil prices rose after trading below $76 US a barrel, while the U.S. dollar lost ground against the yen and the euro.

Obama said he would seek to limit the size and complexity of large financial institutions so any collapse wouldn't imperil the broader financial system and world economy, leading to more rescues at taxpayers' expense.

The move comes amid growing public frustration with Wall Street as bailed-out U.S. banks continue to restrict lending, charge consumers high fees and pay large bonuses at a time of high unemployment and slow economic growth.

The announcement and Wall Street's reaction spooked a market already on edge over the China's recent moves to prevent its economy from overheating amid worries of inflation and asset bubbles.

Adding to the uncertainty are questions about whether this year's economic prospects justify more gains after the run-up in stock prices that began in early 2009, said Mark Matthews, a strategist at Macquarie Capital Securities in Hong Kong.

Already priced in?

Last year "was such an amazing ride and people are starting to wonder if the recovery that we're seeing in 2010 was already priced in," Matthews said.

Europe's market reaction was more muted: Britain's FTSE was flat, Germany's DAX shed 0.5 per cent and France's CAC-40 was off 0.3 per cent. U.S. futures pointed to thin gains Friday on Wall Street. S&P futures rose 3.2, or 0.3 per cent, to 1,114.30.

A number of markets in Asia recovered some of their losses later in the session. Japan helped lead the declines, with the Nikkei 225 stock average diving 277.86 points, or 2.6 per cent, to 10,590.55.

Hong Kong's Hang Seng dropped 136.49, or 0.7 per cent, to 20,726.18 and Korea's main market index lost 2.2 per cent to 1,684.35.

Elsewhere, China's Shanghai benchmark fell one per cent, India's Sensex shed one per cent and Australian stocks retreated 1.6 per cent.

While banks in the U.S. fell steeply, shares in Asian financial institutions performed better, with many closing the session higher.

Japanese mega lender Mitsubishi UFJ edged up 0.2 per cent and China's ICBC gained 2.3 per cent in Hong Kong. Other industries like commodities suffered big drops as concerns about future global demand prompted investors to scale back their riskier bets.

In the U.S. on Thursday, Wall Street was yanked lower by heavy selling in bank stocks.

The Dow fell 213.27, or two per cent, to 10,389.88, its biggest point and percentage drop since Oct. 30.

The broader Standard&Poor's 500 index fell 21.56, or 1.9 per cent, to 1,116.48. The Nasdaq composite index fell 25.55, or 1.1 per cent, to 2,265.70.

Oil prices rose in Asia after early losses, with benchmark crude for March delivery up 12 cents at $76.20 US a barrel. The contract dropped $1.66 to settle at $76.08 overnight.

The U.S. dollar weakened to 90.29 yen from 90.49 yen. The euro was higher at $1.4136 from $1.4082.