* Even some safe havens liquidated for cash
* Oil nears $82 on expectations of global recession
* VIX "fear gauge" surges as credit drought worsens
* Federal Reserve seen cutting rates to 1 pct this month
(Updates prices, adds quote)
By Kevin Plumberg
HONG KONG, Oct 10 (Reuters) - Asian stocks plunged on
Friday, with Japan's Nikkei down more than 10 percent, while
the yen and U.S. Treasury debt prices rose, as panic set in
after global efforts so far failed to unlock credit markets.
A synchronised cut in borrowing costs by central banks
around the world this week was seen as too little, too late,
and investors doubted a meeting of the Group of Seven rich
nations later on Friday could achieve much, with fears growing
that the global economy is headed towards recession.
U.S. government debt and the yen have become refuges from
the worsening financial crisis that overnight knocked the U.S.
S&P 500 stocks index <.SPX> down 7.6 percent to a 5-year low.
But cash was ultimately king, with even Japanese government
bonds being liquidated for funding.
Fears of a sharp slowdown in demand for raw materials from
heavy consumers like China and the United States dragged oil
prices down to a 12-month low below $83 a barrel.
"It's impossible to predict the bottom, and technical
analysis is meaningless as panic and fear overwhelm the
markets," said Jang Huh, managing director at Prudential Asset
Management in Seoul.
The Nikkei share average <> was down 10.1 percent,
bringing the week's losses to more than 20 percent.
Unlisted Yamato Life Insurance Co filed for bankruptcy
protection because of market turmoil, shocking investors who
had thought Asia's financial sector, especially Japan's, was
relatively stable compared with Europe and the United States.
The MSCI index of Asia-Pacific stocks excluding Japan
<.MIAPJ0000PUS> was down 7.7 percent to its lowest since
January 2005, and has fallen 21 percent this week alone. The
all-country world stocks index fell to the lowest since
November 2003 <.MIWD00000PUS>.
Hong Kong's Hang Seng index <> dropped 7 percent to a
near three-year low. The market value of companies listed on
the index has lost almost half its value since the year began.
Singapore's Straits Times index <.FTSTI> fell more than 6.6
percent, and data confirmed one of Asia's richest economies was
in a recession.
The Chicago Board Options Exchange Volatility index (VIX),
seen as a gauge of investor fear, hit an all-time high of 64.92
<.VIX>, as investors scrambled to buy increasingly expensive
protection against erratic price action.
With global equity markets declining with brutal swiftness,
investors have rushed to U.S. Treasury debt despite weakness in
recent days on expectations for a glut of new issuance.
The 10-year note <US10YT=RR> rose 6/32 in price, taking its
yield to 3.76 percent from 3.78 percent. Rates on one-month
T-bills fell to just 0.046 percent, from 0.080 on Thursday and
1.55 percent as recently as Sept. 11, as the very short end of
the market continued to act as a source of funding with other
avenues all but shut down.
WHAT MORE CAN BE DONE?
Credit markets were nearly broken. The cost of protection
against defaults in Asia's sovereign and corporate debt soared
to record highs, traders said.
The iTRAXX Asia ex-Japan high-yield index <ITAHY5Y=IE>, a
key measure of risk aversion for the region's "junk"-rated
credit, soared about 90 basis points to a record 890/940 bps, a
Singapore-based fund manager said. But traders warned of little
activity in the credit markets, which tends to magnify price
differences.
Extreme market volatility stoked talk that the major
central banks would have to reduce interest rates again, just
days after a concerted round of cuts led by the Federal Reserve
and European Central Bank. There were also reports the U.S.
Treasury was under intense pressure to inject funds directly
into commercial banks.
"It highlights the enormity of the issue and the problem
faced by the G7," said Adam Carr, a senior economist at broker
ICAP in Sydney. "Given the muted response in markets, certainly
I think more rate cuts are to come, as ineffective as they are
proving. Lets hope the G7 propose a good dose of fiscal
medicine to the real economy as well."
Whether or not global policymakers have anything more
planned, time was running thin.
The spread of 3-month London interbank offered rates over
the 3-month U.S. Treasury bill yield widened to 426 bps,
increasing more than 300 bps in the last month, with cash being
hoarded and practically no lending between banks.
Japanese government bonds plunged as much as 1.99 points to
136.47, with investors in a frantic rush to secure cash with
domestic money markets succumbing to the freeze around the
world.
The euro slid to a three-year low of 132.80 yen before
trimming losses to 133.88 yen <EURJPY=R>. The U.S. dollar hit a
six-month low of 97.91 yen before clawing back to 98.97 yen
<JPY=>.
U.S. crude oil futures <CLc1> fell 5.2 percent to a
12-month low of $82.10 a barrel on concerns the growing
financial crisis would sap fuel demand from countries like
China.
The slowdown in the country's property and manufacturing
sectors means it will take time to work through its metals and
other raw materials stockpiles.
"With a steady stream of negative news dampening sentiment
across the commodities complex, market players are hoping for
supportive government measures to arrest the decline in
commodity and equity prices," said Jing Ulrich, managing
director and chairman of China equities with JPMorgan in Hong
Kong.
Spot gold <XAU=> rose $2.50 to $914 an ounce as investors
search for assets that might be safe havens from the sharp fall
on equity markets.
(For more on the crisis, click [])
(Additional reporting by Aiko Hayashi in TOKYO, Wayne Cole in
SYDNEY and Rafael Nam and Umesh Desai in HONG KONG)
(Editing by Ian Geoghegan)
