* 100 basis points Australia rate cut knocks down yen
* Investors hope for coordinated response to crisis
* Korea's won plunges 5.7 pct to 7-yr low vs US dollar
(Recasts, updates prices, adds quote)
By Kevin Plumberg
HONG KONG, Oct 7 (Reuters) - Asian stocks outside Japan
rose for the first time in four days on Tuesday and the yen
fell after a surprisingly large interest rate cut by
Australia's central bank raised hopes that other policymakers
would follow suit.
Panic that U.S. and European governments have not yet found
a solution to the plague sweeping through the global financial
system had pushed Asian stocks to a near 3-year low earlier.
The fury with which global equity markets have sold off in
recent weeks and the worsening condition of the financial
system has made the upcoming Group of Seven rich nations
meeting even more important.
Investors have begun to anticipate some kind of cooperation
among countries to solve the crisis, especially after the
Reserve Bank of Australia delivered a full percentage point
rate cut, the biggest cut in rates since 1992. []
"Investors believe global central banks could do anything,"
said Tsutomu Soma, senior manager of foreign assets at Okasan
Securities in Tokyo. "The next step could be coordinated
interest rate cuts, interventions in the foreign exchange
market or more fund injections into money markets. Who knows?"
The MSCI Asia-Pacific excluding Japan stocks index
<.MIAPJ0000PUS> rose 1.4 percent, rebounding from the lowest
since December 2005.
Australia's benchmark S&P/ASX 200 index <> jumped 2.3
percent, bouncing from a 3-year low, while Singapore's Straits
Times index <.FTSTI> rose 2.2 percent.
The Nikkei was down 1.3 percent <> after earlier
slipping as much as 5 percent to its lowest since December
2003.
FEAR RULES
South Korea's KOSPI <> fought back to trade 0.5
percent higher after closing at the lowest in 21 months on
Monday.
The country's regulator said it was considering steps to
reduce volatility in the equity market, helping to stem some of
the day's losses. []
Hong Kong's markets were closed for a public holiday.
The $700 billion U.S. rescue fund, ad hoc measures by
European governments and massive injections of funds by central
banks around the world have not been able to stop confidence in
the financial system from evaporating or growing fears the
global economy is on path to recession.
On Monday, the Dow Jones industrial average <> closed
at a 4-year low after dipping below 10,000 points for the first
time since October 2004, and Europe's FTSEurofirst 300 index
<> chalked up its biggest percentage decline ever,
shedding 7.8 percent.
With the G7 meeting on Friday though, market participants
have begun to brace for broader, international action that
might include monetary policy action.
"The key issue is coordination of policies, since
individual country policies aimed at shoring up confidence of
domestic institutions can actually exacerbate systemic risk by
altering relative risk between countries," said Ashley Davies,
currency strategist with UBS in Singapore. "As such, a
coordinated global approach by the major financial powers may
be critical to containing the destructive aspects of global
deleveraging," he said in a note.
WILL CENTRAL BANKS WORK TOGETHER?
In other markets, dealers picked up the pieces a day after
the Chicago Board Options Exchange Volatility index, better
known as the VIX <.VIX>, vaulted to a record high of 58.24 as
investors scrambled to buy protection against plummeting stock
markets.
The benchmark 10-year U.S. Treasury note yield <US10YT=RR>,
which moves in the opposite direction of the price, ticked up
to 3.51 percent after dropping to 3.46 percent late on Monday
in New York. It was still down sharply from 3.60 percent late
last week, reflecting the heavy demand for government debt as a
relatively safe haven from market shockwaves.
Japanese 10-year government bond futures <2JGBv1> were down
0.5 point to 138.11 after rising for three straight days.
Frozen interbank lending markets and bank rescues remained
a feature in the United States and Europe. But the bailout of
two big European banks and a decision by several European
governments to guarantee bank deposits in emergency moves in
the last several days have done little to dispel intense waves
of fear.
"At this point, all we can do is to wait and see how
effective the U.S. financial rescue plan or any other
coordinated government efforts will be in thawing global
capital markets," said Lee Kyoung-su, a market analyst at
Taurus Investment & Securities in Seoul.
After a massive surge on Monday, the yen dropped after the
Australian rate encouraged some cautious willingness to take
risks and unwind pure safety trades.
The dollar rose as much as 0.8 percent against the Japanese
currency to 102.62 yen <JPY=>, pulling further away from a
six-month low of 100.22 yen hit on trading platform EBS the
previous day.
The euro was up 0.8 percent to 138.60 yen <EURJPY=>.
The Australian dollar surged 4 percent against the yen,
rising to around 75 yen <AUDJPY=R>.
The South Korean won dropped 5 percent to the lowest in
more than 7 years against the U.S. dollar as investors focused
on the country's relatively high level of debts, despite
assurances from the government that Asia's fourth-largest
economy was not facing a currency crisis.
Gold climbed in the spot market <XAU=>, up 0.6 percent to
$863.50 an ounce after rocketing nearly 4 percent on Monday on
a flight to anything resembling safety.
(Additional reporting by Park Jung-young in SEOUL and Rika
Otsuka in TOKYO; Editing by Lincoln Feast)
