* More details sought on massive U.S. effort to end crisis
* Fears about crisis plan costs keep pressure on U.S.
dollar
* Money markets show signs of stability
(Updates prices, adds European outlook, quote)
By Kevin Plumberg
HONG KONG, Sept 23 (Reuters) - Asian stocks fell and U.S.
Treasury prices rose on Tuesday on scepticism about how
Washington's $700 billion bailout plan can restore confidence
in the U.S. financial system when the economy may be facing a
recession.
Major European stock markets were expected to open down as
much as 1 percent, according to financial bookmakers, on global
unease about the rescue effort's prospects.
The U.S. dollar stabilised after tumbling to a six-week low
against the euro overnight as fears arose about rising costs of
a bailout exploding the U.S. budget deficit.
Initial exuberance about the government's latest answer to
the financial crisis, which is being fought over in Congress,
also faded.
"The combination of a weaker dollar and higher risk
aversion and lower Treasury yields suggests very strongly that
the market is questioning whether the Treasury plan will be
implemented in its current form," said Ashley Davies, currency
strategist with UBS in Singapore, in a note.
November crude oil futures <CLc1> were down slightly around
$109 a barrel, after rising nearly $7 overnight on the weaker
dollar. The October contract, which expired on Monday, soared
16 percent in its biggest one-day gain ever.
STOCKS SLIP
The MSCI index of Asia-Pacific stocks outside of Japan
<.MIAPJ0000PUS> slipped 1.9 percent, though it remained well
above a two-year low hit on Thursday.
Australia's benchmark S&P/ASX 200 index <> was down
2.3 percent, with bank stocks and shares of mining firm BHP
Billiton <BHP.AX> the biggest drag.
The country's regulator eased a total ban on short selling,
allowing selected use of the strategy. However, investors
wondered if such restrictions put into effect around the world
would have much of a chance in stopping heavy selloffs.
"I don't think stopping short selling has stopped our
market from falling," said Tom Elliott, managing director of
hedge fund MM&E Capital in Melbourne. "If the U.S. bailout plan
falls apart, which it's showing signs of doing, then the
markets will go down again," Elliott said.
Hong Kong's Hang Seng index <> led the region lower,
dropping 2.7 percent but it traded well above the two-year low
hit on Thursday. Shares of China Mobile <0941.HK> and HSBC
<0005.HK> were the heaviest weights on the index.
Japan's market was closed on Tuesday because of a holiday.
OVERSOLD MARKETS?
Global equity markets have had a tight inverse relationship
with Wall Street's so-called fear gauge for the last six
months. The Chicago Board Options Exchange volatility index
<.VIX> rose to 42.16, the highest since October 2002 on
Thursday.
It stood at 33.85 on Monday, suggesting that while concerns
among market participants have certainly eased since Thursday,
they are still elevated.
Sean Darby, chief Asia strategist with Nomura in Hong Kong,
believes that Asian and emerging markets will outperform
developed markets in the near term after being extremely
oversold last week. However, he recommended investors continue
to play defense against risks of a sharp global slowdown.
"Investors should look to realign their portfolios to the
perceived lowest cost producers and to companies less dependent
on global trade. Moreover, large-capitalised and value stocks
appear set for a period of outperformance as investors are
unlikely have the same risk appetite compared with 18 months
ago," he said in a research report.
Risk taking among investors, which usually benefits
emerging market assets, non-investment grade debt and
higher-yielding currencies, has been recovering only in patches
since Washington began an all-out assault on stemming the
financial crisis late last week. The U.S. government has opened
up its own balance sheet to illiquid assets, banned some
short-selling and rescued companies and money market funds.
Some signs show improved liquidity conditions in money
markets, with the overnight U.S. dollar borrowing rate stable
around 2.25 percent <USDOND=> and 3-month and 6-month U.S.
Treasury bill yields climbing above 1 percent.
However, many market participants remain shellshocked after
the last two extraordinary weeks in which Fannie Mae <FNM.N>
and Freddie Mac <FRE.N> were effectively nationalised, Lehman
Brothers <LEHMQ.PK> filed for bankruptcy, Washington bailed out
insurer American International Group <AIG.N> and Bank of
America <BAC.N> bought Merrill Lynch <MER.N>.
The euro was relatively unchanged at $1.4785 <EUR=> after
having staged its biggest one-day gain since its inception in
January 1999 to hit a six-week high around $1.4865 overnight.
The dollar slipped 0.1 percent to 105.30 yen <JPY=>, but
remained down 5.4 percent on the year.
The 10-year U.S. Treasury note yield <US10YT=RR>, which
moves in the opposite direction of the price, slipped to 3.83
percent after rising to 3.85 percent late on Monday in New
York.
(Additional reporting by Sonali Paul in MELBOURNE; Editing by
Lincoln Feast)
