* Fed's Bernanke signals willingness to cut rates
* Yen edges up as global equities tumble to 4-year low
* Indonesian stocks halted after 10 percent fall
(Updates prices, adds credit market background, quotes)
By Kevin Plumberg
HONG KONG, Oct 8 (Reuters) - Asian stocks fell more than 6
percent and government bond prices rose on Wednesday as fears
of a global recession snowballed with no sign of a coordinated
response or an end to the worsening financial meltdown.
The yen climbed as investors clung to anything resembling
stability after Federal Reserve Chairman Ben Bernanke warned
turmoil in markets could cause U.S. economic activity to be
subdued into 2009 and signalled a readiness to cut interest
rates. []
Credit markets brushed aside surprise policy easing by Hong
Kong's monetary authority and a radical shift in U.S. central
bank policy to allow it to lend directly to companies. The cost
of protection against debt default soared in Asia as the rates
banks charge each other climbed, further prohibiting the flow
of credit through the global money system. []
"The deteriorating outlook for the economy and the
deepening financial crisis are pushing fears to their limit,"
said Mitsushige Akino, chief fund manager at Ichiyoshi
Investment Management in Japan.
Tokyo's Nikkei share average <> plunged 6.5 percent,
hitting a fresh 5-year low, bringing losses for the past five
days to more than 16 percent.
Shares of Toyota Motor Corp <7203.T> fell 10 percent after
a report the car maker's annual operating profit will likely
fall around 40 percent in the year to next March. []
Australia's S&P/ASX 200 index <> slid 4.3 percent, a
day after rallying on a much larger-than-expected interest rate
cut by the country's central bank.
The MSCI Asia-Pacific index of stocks outside of Japan
<..MIAPJ0000PUS> was down 5.9 percent to a 3-year low. The
index has fallen a staggering 26 percent in a month and 48
percent so far this year, underperforming the MSCI all-country
world index <.MIWD00000PUS>, which has fallen 37 percent
year-to-date.
Hong Kong's Hang Seng index <> fell 5.6 percent to a
27-month low after a market holiday on Tuesday while Indonesian
stocks <> tumbled 10 percent before authorities called a
trading halt.
Bernanke's sobering and candid tone in a speech on Tuesday
about the likelihood of interest rate cuts came days after
European Central Bank President Jean-Claude Trichet prepared
markets for lower borrowing costs.
However, with the upcoming Group of Seven rich nations
meeting on Friday, investors have begun to anticipate broader
action to snuff out what has become a global calamity.
TIME TO STEP UP
A host of actions by various governments -- including a
series of bank rescues, the establishment of a $700 billion
U.S. rescue fund, emergency measures by European governments
and massive injections of funds by central banks around the
world -- has so far failed to stop the increasing dysfunction
of the financial system or keep the global economy from a
potential recession.
The UK government was set to announce its own bank rescue
package, which will likely include a major capital injection,
while the Bank of England is expected to cut its base interest
rate by a half-percentage point after it meets on Thursday.
[]
"Markets are confidently pricing cuts and have done so for
some time. But surely, it is time to step up and not merely
match those expectations and do so immediately but to go
further in an effort to engender some confidence," Patrick
Bennett, Asia foreign exchange and interest rate strategist
with Societe Generale said in a note.
At the epicenter of the crisis, credit markets reflected
worsening conditions. In Asia excluding Japan, the bids on the
iTRAXX index of high-yielding credit default swaps shot up to
around 775 from 710 on Monday, dealers said. Trading was very
thin, however, with low confidence among traders about prices.
Meanwhile, the yen has emerged as clear favourite among
investors amid soaring market volatility.
However, UBS recommended bets the U.S. dollar would
strengthen against the yen ahead of possible coordinated action
among policymakers.
"The market has reasons to respond positively to efforts
from officials in Europe and the U.S. Concerted efforts may
soon reach a critical level in our view, helping investor's
sentiment, rendering support to dollar/yen," UBS strategists
said in a note.
The dollar slipped almost 1 percent to 100.7 yen <JPY=>,
holding above a six-month low of 100.22 yen struck on trading
platform EBS earlier in the week.
The euro dipped 1.2 percent to 137 yen <EURJPY=R>, holding
above a three-year low of 135.05 yen also hit this week. Both
the Australian <AUDJPY=R> and New Zealand dollars <NZDJPY=R>
fell about 1 percent against the yen.
Japanese 10-year government bond futures <2JGBv1> rallied a
full point to 139.35, having risen for three of the last four
days.
U.S. Treasury debt prices were steady after the Federal
Reserve said overnight it would begin buying commercial paper,
a form of short-term funding that has dried up as a result of
the credit crunch.
The benchmark 10-year yield <US10YT=RR> was relatively
unchanged at 3.51 percent.
Like other developed bond markets, the difference of the
10-year yield over the 2-year yield -- also called the yield
curve -- has been growing sharply over the last month as
dealers anticipated a cut in the Federal Reserve's target rate.
In the last month, the U.S. yield curve has steepened by 64
basis points to the most since June 2004.
(Additional reporting by Aiko Hayashi in TOKYO and Rafael Nam
in HONG KONG; Editing by Lincoln Feast)
