* US policymakers unable to agree on $700 bln plan
* Biggest ever US bank failure adds to gloom
* Asian money markets tighten as crisis spreads
* Central banks offer dollars to ease money markets
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Sept 26 (Reuters) - Asian stocks and the U.S.
dollar fell while Treasuries rose on Friday after talks over a
$700 billion plan to save the financial system hit a snag and
the biggest ever U.S. bank failure dashed hopes for a quick
recovery.
Major European stock markets were expected to open down as
much as 1.9 percent, according to financial bookmakers, and
U.S. stock market futures pointed to a lower open on deep
uncertainty about the fate of the White House rescue plan.
JPMorgan Chase & Co <JPM.N> bought certain Washington
Mutual Inc <WM.N> assets for $1.9 billion after the largest
U.S. savings and loan was closed overnight by a U.S. regulator.
[]
The deal, the latest in the last few weeks that have shaken
up the financial sector, showed how unstable the bank industry
is and why stakes in agreement on the bailout plan are so high.
The U.S. dollar weakened against the yen and Swiss franc,
two currencies associated with stability, as a bipartisan deal
to get what is called the Troubled Assets Relief Program turned
into a law may have to wait until at least the weekend.
"We'd have to pinpoint dollar weakness on the TARP plan and
overnight there has been no progress on that. In fact it seems
to be getting bogged down," said Jan Lambregts, head of Asia
research with Rabobank Global Financial Markets in Hong Kong.
"The Congress doesn't really want the plan -- no one really
wants the plan -- but the alternative is too bad to
contemplate."
The dollar was down 0.7 percent against the yen at 105.65
yen <JPY=> and off 0.3 percent against the Swiss franc at
1.0860 francs <CHF=>.
The euro was up 0.1 percent to $1.4636 <EUR=>, cutting
earlier gains but still a little more than two cents away from
a one-month high hit on Monday.
U.S. Treasury debt prices rose, with the most prominent
gains in long-maturity bonds. The 10-year note <US10YT=RR> rose
19/32 in prices, pushing down the yield to 3.79 percent from
3.84 percent late in New York.
The yield on the 3-month bill slipped 2 basis points to
0.75 percent <US3MT=RR> as investors continued to pile into the
very short-end of the market in search of liquidity and safety.
With commercial banks hoarding cash and reluctant to lend
to each other, central banks have stepped in to fill the void.
In a coordinated move to ease money market tension, the
European Central Bank and the British and Swiss central banks
said they would offer tens of billions of dollars for one week.
In South Korea, the Finance Ministry said it would inject
$10 billion or more into the local swap market until the middle
of October to stave off persistent dollar funding shortages.
STRESS IN ASIA MARKETS
Lending between banks remained sluggish and confidence low.
The spread of 3-month eurodollar rates over 3-month U.S.
Treasury bill yields, also known as the TED spread <TED>,
widened slightly from late Thursday to 275 bps, but is lower on
the week.
The spread is used as a gauge of risk aversion and
tightness in short-term lending.
Short-term U.S. dollar borrowing rates among banks have
been relatively stable this week after a series of currency
swaps were set up with the Federal Reserve and persistent
liquidity injections.
However, money markets across Asia showed evidence of
increasing stress. In Singapore, 3-month interbank rates jumped
to 3.77 percent <SIUSD3MD=>, the highest since January. Hong
Kong's 3-month interbank rates eased slightly to 3.39 percent
after hitting a 2008 high on Thursday of 3.80 percent
<HIHKD3MD=>.
Equity markets reflected growing malaise ahead of further
developments in Washington.
Japan's Nikkei share average <> finished down 0.9
percent and has traded in a very narrow range this week.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> was down 1.7 percent and on track for a fourth
consecutive week of declines.
Hong Kong's Hang Seng index <> fell 2 percent, with
shares of Ping An Insurance <2318.HK>, China's second-largest
insurer, falling 9.7 percent. Ping An owns 5 percent of
European financial firm Fortis <FOR.BA>, whose shares tumbled
on Thursday on market talk the Dutch Central Bank asked a rival
bank to supply Fortis with capital.
(For related Graphic, click
https://customers.reuters.com/d/graphics/MKT_TLN260809.gif)
U.S. stock market futures extended a decline after a
late-night White House session between Treasury Secretary Hank
Paulson and congressional leaders ended in partisan gridlock.
The S&P 500 future <SPc1> was last down 1.5 percent.
The JPMorgan purchase of WaMu assets cleared away some of
the risk that a failing bank could drag others down with it,
but bickering over the financial bailout in Washington only
worsened a sense of dread about the economic outlook.
"What's really required at the moment is U.S. Congress to
step forward and show a united front on the bailout plan.
That's really where the uncertainty is at the moment, that's
really what will give markets a catalyst for turnaround," said
Savanth Sebastian, equities economist with Commonwealth
Securities in Sydney.
The online prediction market Intrade reflected a 61.5
percent chance Congress would approve the White House bailout
plan by Sept. 30, down from a better than 90 percent chance on
Thursday. Many congressional officials will leave at the end of
the month to campaign for the presidential election in
November.
