* Funding squeeze pushes up U.S. dollar
* Commodity prices tumble on view of slower global growth
* Bailout vote uncertain in the House of Representatives
By Kevin Plumberg
HONG KONG, Oct 3 (Reuters) - Asian stocks fell while the
yen rose to a two-year high against the euro on Friday on fears
the $700 billion financial rescue bill still needing final U.S.
government approval may not be enough to keep the global
economy from falling into recession.
The flow of credit remained practically frozen in money
markets, leading to a scramble for U.S. dollar funding that has
the currency on track for its largest weekly gain in 16 years
against a basket of major currencies.
The euro remained under pressure after dropping to a
13-month low against the dollar on Thursday on indications the
European Central Bank is leaning toward cutting interest rates
after recent bank failures threatened the euro zone economy.
Raw materials prices tumbled on expectations that demand
from big consumers such as the United States and China will
fall. Copper prices <MCU3> were on track for a record decline
this week, down around 14 percent, and oil was down 12.5
percent for the week, its biggest five-day drop since December
2004.
"Economic concerns are mounting and regardless of whether
the bailout plan is accepted in the House later today this will
not change," economists with Calyon said in a note.
"The U.S. dollar is set to maintain a firm tone in the
Asian session, especially against European currencies as both
economic and financial sector concerns mount."
Japan's Nikkei share average fell 1.2 percent, led by
shares of car makers Honda Motor Co <7267.T> and Toyota Motor
Corp <7203.T> following a big drop in U.S. sales earlier this
week.
"With the U.S. auto sales down about 30 percent, it's
become clear that financial problems are finally spreading to
the real economy," said Takahiko Murai, general manager of
equities at Nozomi Securities in Tokyo.
The MSCI index of Asia-Pacific stocks outside of Japan
slipped 0.8 percent <.MIAPJ0000PUS> and were off 6.9 percent on
the week. Regional equity markets have outperformed the
All-Country World Index, which sank 8.8 percent this week to
the lowest in three years <.MIWD00000PUS>.
Hong Kong's Hang Seng index dropped 2.6 percent <>,
dragged down by bank stocks as tight lending conditions spread
fears one of Asia's main financial hubs would be hit hard.
The euro was down 0.3 percent to 145.15 yen <EURJPY=> after
earlier slipping below 144.88 yen to the lowest in two years,
as investors continued to find refuge in the yen and the Swiss
franc.
The dollar slipped 0.3 percent at 105 yen <JPY=> and was
down 0.3 percent to 1.1320 Swiss francs <CHF=>. The euro was
steady against the dollar at $1.3830 <EUR=> after dropping to
around $1.3750 on Thursday.
The main focus on Friday would likely be the vote in the
House of Representatives on the White House plan to buy up
illiquid securities from battered financial firms. The Senate
passed a modified version of the bill on Thursday, which
included tax cuts for businesses and consumers.
Political brinkmanship continued in Washington after the
House shook markets earlier this week by rejecting the bill and
passage in the House was anything but certain.
Government debt was still the safest bet for investors
increasingly intolerant of having risk in their portfolios.
The 10-year Japanese government bond future <2JGBv1> was up
0.6 point to 137.89, rising for a second day.
The 10-year U.S. Treasury note was unchanged on the day,
fighting off early losses, for a yield of 3.62 percent
<US10YT=RR>. The highly liquid bills market, which investors
have been using as an alternative source of short-term
investment, saw solid demand.
The 1-month bill yield <US1MT=RR>, which moves in the
opposite direction of the price, slipped 4.5 basis points to
0.20 percent.
The November U.S. light crude contract <CLc1> fell 55 cents
to $93.42 a barrel, creeping down toward the 7-month low of
$90.51 a barrel hit on Sept 16.
(Editing by Lincoln Feast)
