* Yen falls on coordinated action to bolster global economy
* VIX "fear index" climbs to record high
* Another Federal Reserve rate cut seen this month
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Oct 9 (Reuters) - Asian stocks clung to small
gains while the yen slipped on Thursday after central banks
from China to Europe and the United States cut interest rates
to support the global economy, though investors were tense with
credit markets still dysfunctional.
Major European stock markets were expected to open as much
as 1 percent higher, according to financial bookmakers, helped
by a steadier performance in Asia, which suffered its biggest
falls in 20 years the previous session. U.S. stock futures
<SPc1> <DJc1> <NDc1> were up at least 1.4 percent.
In an unprecedented display of international coordination,
the U.S. Federal Reserve, the European Central Bank and others
including China's central bank on Wednesday executed emergency
rate cuts amid plunging global equity markets and a bank
industry under severe duress. []
Still, analysts said more will certainly have to be done by
policymakers before the worst financial crisis since the Great
Depression is over, particularly with a meeting of the Group of
Seven rich nations coming up on Friday. In the meantime, the
historic actions have made price action more of a two-way
street.
"The lack of a clear positive signal from the market we
think means the markets will continue to pressure the Fed and
other central banks to deliver further cuts and inject
liquidity to the end of the year," economists at United
Overseas Bank in Singapore wrote in a note.
The MSCI index of Asia-Pacific shares outside Japan rose
1.6 percent <.MIAPJ0000PUS>, after tumbling 9 percent on
Wednesday, its the biggest single-day fall in at least 20
years.
Japan's Nikkei share average <> finished 0.5 percent
lower in a choppy session, down for a sixth straight day for
its lowest close since June 2003.
But Hong Kong's Hang Seng index <> rebounded 2.7
percent after three-days of losses had taken it to the lowest
close in two years. Valuations were the lowest since the Asian
financial crisis about a decade ago.
YEN OFF HIGHS
The yen slipped after soaring higher overnight, with
dealers unravelling some safety trades. Many analysts say the
yen will likely remain firm as long as the crisis persists
because of the appeal of Japan's current account surplus and
its stable financial sector.
"There has a tentative move back into risk taking since the
coordinated rate cuts but of course that's only giving back a
small proportion of the selloff we've seen over recent days,"
said Dwyfor Evans, strategist with State Street Global Markets
in Hong Kong. "This is not a full fledged move back into risk."
The dollar rose 1.8 percent against the yen to 100.9 yen
<JPY=>, rebounding from a six-month low of 98.60 yen hit on
Wednesday.
The euro also recovered against the yen, up 2.2 percent at
138.15 yen <EURJPY=R>, four yen above the three-year low of
134.15 yen it hit on Wednesday.
Even after the half-percentage point emergency rate cut by
the Federal Reserve, the futures markets still reflects a 90
percent chance the U.S. benchmark rate will be lowered by a
quarter point by the next policy meeting on Oct. 29.
The global actions to ease monetary policy so far were not
taken without risks. Economists said dysfunctional short-term
lending markets could mute the intended effects of such
broad-based measures. Without the flow of credit, the global
economy is still likely on a path to slowing sharply.
"A risk for serious global recession has increased as the
coordinated rate cuts are not doing much in stabilising
financial markets. That would have an adverse effect on Asian
economies, in which the manufacturing sector has a large
share," said Masamichi Adachi, senior economists with JPMorgan
Securities in Tokyo.
Gold prices in the spot market fell 1.7 percent to $891.40
an ounce <XAU=> as some willingness to take risks among
investors was revived, but holdings in the world's largest
gold-backed exchange-traded fund, the SPDR Gold Trust <GLD>,
hit a record, indicating the allure of the precious metal
remains high.
TAKING TIME
After more than a year of dislocations in money markets,
which have spiralled in the last month, investors have become
convinced any solution will take time to work.
Even after the central bank action, the Chicago Board
Options Exchange Volatility index, better known as the VIX
<.VIX>, shot up to a record high of 59.06, having risen more
than 36 points in the last month.
Japanese government bonds fell in anticipation of new
supply and with investors spooked by a selloff in U.S.
Treasuries. The 10-year JGB future was down 1.1 point to 138.46
<2JGBv1>.
U.S. Treasury debt prices extended losses after a sharp
decline overnight after a poor auction for on older 10-year
note issue. The benchmark 10-year yield <US10YT=RR>, which
moves in the opposite direction of the price, ticked up to
3.715 percent from 3.66 percent late on Wednesday 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.
After the Fed rate cut, the curve steepened further on
Wednesday to 208 basis points, the most since June 2004.
(Editing by Lincoln Feast)
