* Scramble for Treasuries pushes bill yields near to zero
* MSCI all-country world index at lowest since Nov 2005
* Morgan Stanley, WaMu reportedly on auction block
* U.S. investor 'fear barometer' at near 6-year high
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By Kevin Plumberg
HONG KONG, Sept 18 (Reuters) - Asian stocks fell, with
shares outside Japan down 4 percent on Thursday, as emergency
actions by central banks and governments around the world
failed to ease a crisis that has investors fleeing to
government bonds or sticking with plain cash.
European stock market futures <STXEc1> <FCEc1> <FDXc1> were
down slightly, pointing to at least a temporary staunching of
three days of heavy selling.
But the seismic shift on Wall Street this week continued to
create a sense of global panic, with frenetic consolidation in
the financial sector in the world's largest economy, sending
the MSCI all-country world stocks index <.MIWD00000PUS> to its
lowest since November 2005.
Investors have piled into short-term U.S. Treasuries and
bailed from money market funds, pushing yields down close to
zero. The cost of insurance against default or restructuring in
the credit default swap market soared to record levels in Asia,
reflecting deep-seated unease.
In the past 24 hours, No. 2 U.S. investment bank Morgan
Stanley <MS.N> and top U.S. savings and loan Washington Mutual
<WM.N> were reportedly up for sale, and Britain's Lloyds TSB
<LLOY.L> agreed to buy rival HBOS <HBOS.L>, reflecting the
unstable landscape that has contributed to gold's 18 percent
surge in the last week. []
"Credit fears have now reached a climax. It's presumptuous
to assume it would end in one day," said Harushige Kobayashi,
head of research department at broker Securities Japan.
"The market ignores fundamentals and is now 95 percent
driven by psychological factors."
The Chicago Board Options Exchange Volatility Index <.VIX>
or VIX, Wall Street's main barometer of investor fear, had its
highest close in almost six years on Wednesday.
Another measure of investor distaste for risk, the TED
spread of 3-month interbank lending rates over 3-month U.S.
Treasury bill yields blew out to more than 300 basis points,
far exceeding levels reached during the U.S. savings and loan
crisis of the 1980s.
Japan's Nikkei share average <> ended down 2.2 percent
to a three-year low early on Thursday.
The MSCI's index of other Asia-Pacific <.MIAPJ0000PUS> fell
3.7 percent after earlier touching the lowest since July 2006.
The index is down about 39 percent so far this year.
Hong Kong's Hang Seng index <> dropped 7.4 percent to
the lowest in two years, led by HSBC <0005.HK>, down 5.9
percent.
Industrial and Commercial Bank of China <1398.HK>, which
gave up its title of world's biggest bank by market
capitalistion to HSBC on Wednesday, saw its shares drop 11.7
percent.
Russia on Wednesday halted stock and bond trading on the
country's MICEX and RTS exchanges as investors and dealers
desperately liquidated positions for cash. It was not clear
when the exchanges would open again.
NO SAFETY
Gold prices were on a roller coaster in the spot market,
rising 0.5 in a volatile day and not providing hardly any of
the stability the precious metal has afforded in the past
<XAU=>. Gold posted its biggest nominal rise ever in dollars on
Wednesday as frenzied investors sought relatively safe assets.
"This is stunning, and testimony to these historic times,"
said Alan Ruskin, chief international strategist with RBS
Greenwich Capital, in a note. "It is clear that fear and a
desperate search for a hedge against risk has trumped all."
For a graphic on world stocks and gold, go to
https://customers.reuters.com/d/graphics/GLBL_IDX0908.gif
Central banks in Japan and Australia pumped another $17
billion into money markets to prevent banks of hoarding cash
amid an environment of distrust and uncertainty. []
Fear of the unknown has also pushed investors to government
bonds, chasing safety above all else, even yield. U.S. Treasury
bill yields inched toward zero.
One-month Treasury yields <US1MTY=RR> dipped to 0.010
percent, from 0.040 percent late in New York on Wednesday, when
it may have actually traded at negative levels, dealers said.
Yields from 1-month to 6-months were less than 1 percent.
"This corner of the cash market is significant because its
a rich, deep pool of liquidity that is tapped by insurance
funds, banks and brokers. Stress here signals another
impediment to vital liquidity," said Brett Williams, credit
analyst with BNP Paribas in Hong Kong.
Investors are quickly learning that in the current crisis
almost nothing is safe, even U.S. money market funds.
Late Wednesday, Moody's Investors Service sharply
downgraded the Reserve Primary Fund after it fell below $1 a
share in net asset value due to losses on debt issued by Lehman
Brothers <LEH.P>, which has filed for bankruptcy protection.
Crude oil <CLc1> has not been immune to the large-scale
liquidation in markets to feed the need for cash. The October
future slipped $1 to $96.13 a barrel after jumping $6 on
Wednesday.
(Additional reporting by Taiga Uranaka in TOKYO; Editing by
Lincoln Feast)
