* U.S. House rejects $700 bln bank bailout plan
* Yen hits a 4-month high vs U.S. dollar
* Wall St fear gauge climbs to record high
* Asian share markets fall 4-6 percent
(Recasts, updates prices, adds quote)
By Kevin Plumberg
HONG KONG, Sept 30 (Reuters) - Asian stocks tumbled,
putting them on course for the biggest monthly decline in more
than a decade, and the yen hit a 4-month high on Tuesday after
U.S. lawmakers rejected a $700 billion plan to end financial
panic and stave off recession.
Fear gripped markets as investors dumped emerging market
assets, sought stability in government debt and confronted the
prospect that the crisis of confidence in the bank industry
will persist, further damaging the global economy.
Credit markets were locked up as banks hoarded U.S. dollar
funds while the costs of protection against defaulting on
borrowings and restructuring soared.
The overnight failure of Washington's biggest and most
comprehensive bid to keep financial sector shockwaves from
tearing up the real economy knocked down the U.S. S&P 500
stocks index <.SPX> for its biggest decline since October 1987.
"In the U.S., we should expect a longer, deeper recession,
further consolidation of the banking sector, and further steps
by the authorities to help the situation," said Gerard Lyons,
chief economist and group head of global research with Standard
Chartered in London.
"The more the U.S. and the more China slows, the more Asia
will be hit and the greater the fall in commodity markets, with
all regions including Africa and the Middle East slowing," he
said in a note.
Japan's Nikkei share average <> tumbled 4.6 percent to
a three-year low, and the MSCI index of Asia-Pacific stocks
outside Japan <.MIAPJ0000PUS> fell 4 percent, not far off a
26-month low.
The index is down 18 percent in September, the largest
decline since October 1997 in the midst of the Asian financial
crisis.
This month has been laced with explosive events that have
turned Wall Street upside down and threatened the global
financial system, including the bankruptcy of Lehman Brothers
<LEHMQ.PK>, the rescue of American International Group <AIG.N>
and the demise of the U.S. investment banking model.
Hong Kong's Hang Seng index was down 3.3 percent, led by
shares of HSBC <0005.HK> and Industrial and Commercial Bank of
China <1398.HK>, two of the biggest banks in the world.
Global equities have had a high inverse correlation with
the Chicago Board Options Exchange Volatility index, also known
as the VIX <.VIX>. The last 24 hours have been no exception.
The VIX -- Wall Street's fear gauge -- closed at a record
high overnight, reflecting immense needs to hedge positions in
U.S. equities.
YEN STILL IN FAVOUR
Investors around the world have been scrambling to
eliminate any risk in their portfolios, loading up on
traditional safe harbours like short-term U.S. government debt
and gold.
Gold prices in the spot market were largely unchanged at
$902.10 an ounce <XAU=>, after rising 5 percent to touch a
two-month high overnight of $920 an ounce.
"The gold market is telling us that the world economy is in
peril," said Jeffrey Nichols, managing director of American
Precious Metals Advisors.
Yields on Treasury debt with maturities below 1-year
slipped, with the 1-month bill yield <US1MT=RR> at 0.06
percent. The 3-month bill yield was at 0.7 percent <US3MT=RR>.
Another asset that has gained favour during times of
widespread uncertainty is the yen.
Though central banks outside the United States have had to
set up special currency swap programs to meet high demand for
U.S. dollar funding, investors have been turning to the yen as
a haven.
"For currencies, the only trade in town with any staying
power is risk aversion and the yen remains the favored pick,"
said Alan Ruskin, chief international strategist with RBS
Greenwich Capital, in a note.
"I think the yen positive story remains clear-cut against
all the major Europeans, and particularly the emerging world."
The dollar dropped to a 4-month low near 103.50 yen before
edging back up to 104.18 yen <JPY=>. The euro was down 0.3
percent at 149.51 yen <EURJPY=> and off 0.5 percent at $1.4350
<EUR=>.
Fear among traders and the gloomier outlook for the global
economy weighed on oil and industrial metals such as copper.
U.S. crude futures <CLc1> extended losses below $96 a barrel,
after diving almost 10 percent the previous session, while
London copper prices also fell further, touching a nine-month
low.
(Editing by Lincoln Feast)
