* Stocks extend rally: Shanghai composite up 6 pct
* Treasuries rise, US stock futures down as questions
linger
* Signs of stabilisation in overnight lending among banks
(Updates prices, adds details, news on Goldman, Morgan
Stanley)
By Kevin Plumberg
HONG KONG, Sept 22 (Reuters) - Asian stocks rose on Monday,
after more details about the U.S. government's $700 billion
bank bailout plan encouraged bargain hunting, but questions
lingered about its long-term implications and the economic
outlook.
The U.S. dollar fell and U.S. Treasury debt prices edged
up, with market participants playing it safe before the
mechanics of the plan are worked out with Congress.
Willingness among investors to take more risk for higher
returns slowly returned, after news of what is likely the
biggest bailout in U.S. history surfaced on Friday, capping an
historic week in which Lehman Brothers <LEHMQ.PK> filed for
bankruptcy, Washington rescued American International Group
<AIG.N> and Bank of America <BAC.N> bought Merrill Lynch
<MER.N>.
Many aspects of the plan have yet to be worked out and
tensions have already arisen over Congressional efforts to curb
the executive pay of programme participants. However, analysts
and investors were slowly moving past the days of massive
writedowns and focusing more on where growth will come from.
"The $700 billion plan should stem the bleeding. However,
the patient is still fragile," said Thomas Lam, senior Treasury
economist with United Overseas Bank in Singapore. "Essentially,
the focus, I think, should shift to some extent from the state
of illiquid securities to fundamentals of the U.S. economy and
availability of capital."
Japan's Nikkei share average <> was up 1.8 percent,
after hitting a three-year low last week. The index has
rebounded around 8 percent in two days.
Outside of Japan, stocks in the Asia-Pacific region were up
2.2 percent, rebounding further from a two-year low plumbed on
Thursday, according to an MSCI index <.MIAPJ0000PUS>.
Hong Kong's Hang Seng index <> pared early gains but
was still up 0.7 percent.
China's main stock index, the Shanghai composite <>,
rose 6 percent as investors dove back in the worst performing
market in the world so far this year.
The Chinese government said on Thursday it would buy shares
in the market, including beaten-up stocks of the country's top
banks, in its strongest effort to improve investor confidence
and turn the equity market around.
PICKING UP THE PIECES
Investors around the world were still grappling with the
repercussions of last week's financial earthquake that leveled
Wall Street.
Goldman Sachs <GS.N> and Morgan Stanley <MS.N> got approval
to became bank holding companies regulated by the Federal
Reserve on Monday []. That marked an unceremonious
end to the investment banking model, which involved buying,
repackaging and selling complex credit products that created a
massive tiger trap once the underlying debt went into default.
Some analysts also became concerned about the long-term
impact of having the U.S. government open up its balance sheet
to illiquid securities whose price is difficult to find.
The bailout plan would, on face of it, burden U.S.
taxpayers even more after the effective nationalisation of
Fannie Mae and Freddie Mac earlier this month and would weigh
on the U.S. fiscal position, putting the world's largest debtor
even more in the hole.
U.S. stocks looked set to open weaker on Monday, with S&P
500 index futures <SPc1> down 0.7 percent. That was on the
heels of Friday's massive rally in stocks worldwide -- the
largest ever one-day advance as measured by market value. The
MSCI main world equity index <.MIWD00000PUS> added more than
$1.5 trillion in value on the day.
The U.S. dollar fell against the yen and the euro, as
dealers awaited further details of the bailout plan.
The dollar fell a full yen to 106.44 yen <JPY=>, while the
euro rose 0.5 percent to $1.4540 <EUR=> to a three-week high.
"The market has come out of a near panic stage after the
U.S. government plan," said Tohru Sasaki, chief forex
strategist at JPMorgan Chase Bank in Tokyo. "But we're still
far from being able to say the problems are solved as we don't
know yet how effective the newly created U.S. facility will be.
The market looks set to remain unstable for a while," he said.
The 10-year U.S. Treasury note yield <US10YT=RR>, which
moves in the opposite direction of the price, slipped to 3.79
percent after jumping nearly 30 basis points on Friday to 3.81
percent.
The short-end of the market reflected slightly reduced
demand for very short-term liquidity, with yields on 3-month
and 6-month bills above 1 percent after dropping to near zero
last week as investors bailed wholesale out of money market
funds.
Also, overnight U.S. dollar borrowing rates were around 3
percent on Monday, only slightly above the federal funds rate.
During the most dire days of the crisis, the rate rose to 6
percent in the Asian session and had hit 10 percent at one
point during the European session.
The October U.S. light crude contract <CLc1> was up
slightly at $104.85 a barrel, while gold in the spot market
<XAU=> fell 0.6 percent to $866.90 an ounce.
(Editing by Lincoln Feast)
