Hong Kong: Asian markets were mixed yesterday but trade was cautious after two ratings agencies sounded alarm bells over the potential impact of the Eurozone debt crisis on major banks.

Despite new governments taking over in Italy and Greece to push through key reforms, the cost of borrowing for under-pressure countries remained dangerously high with Spain paying record rates at a bond auction.

Tokyo finished 0.19 per cent, or 16.47 points, higher at 8,479.63, Sydney rose 0.25 per cent, or 10.8 points, to 4,258.2 and Seoul added 1.11 per cent, or 20.60 points, to 1,876.67.

Hong Kong fell 0.76 per cent, or 143.43 points, to 18,817.47, while Shanghai closed 0.16 per cent, or 3.91 points, lower at 2,463.81.

Fitch ratings agency warned that the contagion effects on US banks were "potentially large" if the crisis spreads beyond Greece, Ireland, Italy, Portugal, and Spain.

It pointed to the risks in France, where banks are being weakened by their own Eurozone exposure, while Paris is cutting spending to avoid losing its AAA credit rating.

Fitch said the top five US banks had $188 billion in exposure to France at the end of the second quarter.

Wall Street's three main indexes ended lower Wednesday following the announcement, with the Dow Jones Industrial Average off 1.58 per cent, the S&P 500 down 1.66 per cent and the Nasdaq losing 1.73 per cent.

Adding to the sense of fear was Moody's decision to downgrade 10 German public-sector banks, saying they were now less likely to receive state support if needed.

"Contagion from the Eurozone debt crisis is spreading quickly, threatening to turn a regional crisis into a global crisis," Credit Agricole said in a note to clients.

"As highlighted by Fitch Ratings, further contagion would pose a risk to US banks," it said, according to Dow Jones Newswires.

The warnings highlighted the possible knock-on effects for Asian investors.

"European banks will likely have to continue reducing risky assets," said Kenichi Hirano, operating officer at Tachibana Securities.

"Asian economies, seen as the engine of global growth, may be damaged... as [European banks] pull their funds out of emerging economies," he said.

There was a little respite in Europe after Italy's new Prime Minister Mario Monti put together his new cabinet charged with pushing through legislation aimed at putting the economy back on an even keel.