* Scramble for Treasuries pushes bill yields near to zero
* MSCI all-country world index at lowest since Nov 2005
* Morgan Stanley, WaMu reportedly on auction block
* U.S. investor 'fear barometer' at near 6-year high
(Updates prices, adds quotes and comments)
By Kevin Plumberg
HONG KONG, Sept 18 (Reuters) - Asian stocks tumbled 3-7
percent on Thursday, with emergency actions by central banks
and governments around the world failing to ease a financial
crisis that has sent investors fleeing to government bonds.
The seismic shift on Wall Street this week continued to
create a sense of global panic, with frenetic consolidation in
the financial sector in the world's largest economy, sending
the MSCI all-country world stocks index <.MIWD00000PUS> to its
lowest since November 2005.
Investors piled into short-term U.S. Treasuries, pushing
yields down close to zero as investors bailed from money market
funds. Even the Federal Reserve had to receive a $40 billion
injection from the U.S. Treasury to help it manage its balance
sheet, after the Fed offered $85 billion in loans to rescue
American International Group <AIG.N> on Wednesday.
Overnight, No. 2 U.S. investment bank Morgan Stanley <MS.N>
and top U.S. savings and loan Washington Mutual <WM.N> were
reportedly up for sale, and a source familiar with the matter
said Britain's Lloyds TSB <LLOY.L> agreed to buy rival HBOS
<HBOS.L>, reflecting the unstable landscape that has
contributed to gold's 18 percent surge in the last week.
[]
"Credit fears have now reached a climax. It's presumptuous
to assume it would end in one day," said Harushige Kobayashi,
head of research department at broker Securities Japan.
"The market ignores fundamentals and is now 95 percent
driven by psychological factors."
The Chicago Board Options Exchange Volatility Index <.VIX>
or VIX, Wall Street's main barometer of investor fear, closed
on Wednesday at its highest level in almost six years.
Another measure of investor distaste for risk, the TED
spread of 3-month interbank lending rates over 3-month U.S.
Treasury bill yields blew out to more than 300 basis points,
far exceeding levels reached during the U.S. savings and loan
crisis of the 1980s.
Japan's Nikkei share average <> fell 3.6 percent to a
three-year low early on Thursday, with shares in high-profile
exporters such as Sony <6758.T> and Honda Motor Co <7267.T> the
biggest drags.
The MSCI Asia-Pacific ex-Japan stocks index <.MIAPJ0000PUS>
fell 3.9 percent to its lowest since July 2006. The index is
down 39.3 percent so far this year.
Hong Kong's Hang Seng index <> dropped 6.6 percent to
the lowest in two years, led by HSBC stock, down 5.9 percent.
Industrial and Commercial Bank of China <1398.HK>, which
gave up its title of world's biggest bank to HSBC on Wednesday,
saw its shares drop 12 percent.
Russia on Wednesday halted stock and bond trading on the
country's MICEX and RTS exchanges as investors and dealers
desperately liquidated positions for cash. It was not clear
when the exchanges would open again.
NO SAFETY
Gold prices were whipsawed in the spot market, slipping 0.4
percent after earlier rising to a 1-month high <XAU=>. Gold
posted its biggest nominal rise ever in dollars on Wednesday as
frenzied investors sought relatively safe assets.
"This is stunning, and testimony to these historic times,"
said Alan Ruskin, chief international strategist with RBS
Greenwich Capital, in a note. "It is clear that fear and a
desperate search for a hedge against risk has trumped all."
Central banks in Japan and Australia pumped $17 billion
into money markets to prevent banks of hoarding cash amid an
environment of distrust and uncertainty. []
Fear of the unknown has also pushed investors to government
bonds, chasing safety above all else, even yield. U.S. Treasury
bill yields inched toward zero.
One-month Treasury yields <US1MTY=RR> dipped to 0.010
percent, from 0.040 percent late in New York on Wednesday, when
it may have actually traded at negative levels, according to
dealers.
"This corner of the cash market is significant because its
a rich, deep pool of liquidity that is tapped by insurance
funds, banks and brokers. Stress here signals another
impediment to vital liquidity," said Brett Williams, credit
analyst with BNP Paribas in Hong Kong.
Investors are quickly learning that in the current crisis
almost nothing is safe, even U.S. money market funds.
Late Wednesday, Moody's Investors Service sharply
downgraded the Reserve Primary Fund after it fell below $1 a
share in net asset value due to losses on debt issued by Lehman
Brothers <LEH.P>, which has filed for bankruptcy protection.
Crude oil <CLc1> held steady at a little above $97 a barrel
after jumping $6 on Wednesday.
