* Concerns on how illiquid assets will be priced in plan
* Banks worldwide still struggle in crisis of confidence
* Risk reduction trend has likely not reversed
By Kevin Plumberg
NEW YORK, Sept 29 (Reuters) - Asian stocks and the U.S.
dollar rose on Monday after Washington lawmakers prepared to
vote on a plan to save the financial system from ruin, but a
large European bank failure left investors' nerves raw.
The proposal to establish a $700 billion fund to buy
illiquid securities will be sent to Congress later on Monday,
though instability in the bank industry has spread across the
Atlantic, with the Belgian, Dutch and Luxembourg governments
forced to rescue financial firm Fortis <FOR.BR> over the
weekend. []
In addition, the British government will take over mortgage
lender Bradford & Bingley <BB.L>, people in the bank industry
familiar with the matter told Reuters, sending the pound and
the euro lower across the board.
"Markets are likely to take a cautiously positive tone to
the plan and the much greater prospect of passage through
Congress," Calyon analysts said in a note.
"Nonetheless, there remain many questions about agreeing
valuations on toxic assets as well as many other operational
issues. Any easing in risk aversion could be limited until its
effectiveness becomes clearer," they said.
The euro fell 0.2 percent to $1.4495 <EUR=>, down almost 4
cents from a one-month high hit a week ago.
Sterling dropped 0.6 percent to $1.8275 <GBP=> after
touching a one-month high on Thursday.
The dollar rose 0.5 percent to 106.78 yen <JPY=>.
The breakthrough on the White House plan triggered a modest
relief rally in Asia's stock markets, though it alone was not
enough to reverse a powerful move by global investors to purge
their portfolios of risk.
"The package will improve liquidity in the system. But I
don't think lenders are going to go out carte blanche and
provide new capital to the market in an aggressive way," said
Leigh Gardner, head of equities distribution for ABN AMRO in
Australia. "The availability of credit has definitely changed,
and this is not going to avert that situation."
Japan's Nikkei share average <> rose 1 percent, led by
clothing firm Fast Retailing Co Ltd <9983.T>.
The MSCI index of Asia-Pacific stocks outside of Japan
<.MIAPJ0000PUS> was largely unchanged on the day, after posting
four consecutive weeks of declines.
Washington's bailout package, though unpopular with the
public and doubted by some analysts, is the biggest effort yet
by the U.S. government to ease the worst global financial
crisis since the Great Depression.
Measures of money market tension and fear among investors
have come down from extreme levels reached in the last few
weeks, but they remain elevated. The spread of the rate on
3-month eurodollar futures over the 3-month U.S. Treasury bill
yield, also known as the TED spread <TED>, narrowed to 245
basis points from 272 basis points late on Friday.
Still, financial firms continued to battle for survival of
the fittest.
Wachovia Corp <WB.N> was in talks with rivals Citigroup
<C.N> and Wells Fargo <WFC.N> over a possible takeover, sources
said. []
Spot gold <XAU=> fell 1.2 percent to $873 an ounce, though
it is up 14 percent in the last two weeks, living up to its
traditional role as a safe haven.
(Additional reporting by Sonali Paul in MELBOURNE; Editing by
Lincoln Feast)
