* Fed's Bernanke signals willingness to cut rates
* Japan's Nikkei falls 9.4 pct in biggest decline since 1987
* Yen edges up as global equities tumble to 4-year low
(Updates prices, adds credit market background, quotes)
By Kevin Plumberg
HONG KONG, Oct 8 (Reuters) - Asian stocks plunged, with
Japan's Nikkei dropping by the most since 1987, while the yen
surged on Wednesday as fears of a global recession snowballed
with no sign of a coordinated response or an end to the worsening
financial meltdown.
Government debt prices jumped as the equity selloff reached a
fever pitch and investors snatched anything resembling stability
on an increasingly grim outlook, especially 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. []
Major European stocks were expected to open sharply lower,
based on indications from the futures market <STXEc1> as the wave
of selling moved overseas.
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 <> plummeted 9.4 percent,
the largest single-day percentage decline since October 1987.
That brought losses for the past five days to 19 percent.
Shares of Toyota Motor Corp <7203.T> fell 11.6 percent after
a company source said the world's biggest car maker will likely
cuts its annual operating profit outlook. []
Australia's S&P/ASX 200 index <> slid 5 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 7.8 percent, the largest decline since
October 1997, according to Reuters data. The index has fallen a
staggering 26 percent in a month and 49 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 5.5 percent to a
28-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.
The dollar dropped around 1.4 percent to a six-month low of
100.23 yen <JPY=>, after briefly dipping to around 99.60 yen.
The euro sank 1.7 percent to 136.37 yen <EURJPY=R>, holding
above a three-year low of 135.05 yen also hit this week.
Japanese 10-year government bond futures <2JGBv1> rallied
1.25 points to 139.55, having risen for three of the last four
days.
U.S. Treasury debt prices rose steeply as the selloff in
Asian shares gained momentum. The benchmark 10-year yield
<US10YT=RR>, which moves in the opposite direction of the price,
fell to 3.44 percent from 3.51 percent late on Tuesday in New
York.
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)
