* U.S. House rejects $700 bln bank bailout plan
* Yen hits a 4-month high vs U.S. dollar
* Asian share markets fall as much as 4 percent
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Sept 30 (Reuters) - Asian stocks fell, chalking
up the biggest monthly decline in more than a decade, and the
yen hit a 4-month high on Tuesday after U.S. lawmakers rejected
a $700 billion plan to end financial panic and stave off
recession.
Major European stock markets were expected to open down as
much as 4.4 percent, according to financial bookmakers, on
expectations the crisis of confidence in the bank industry will
keep spreading through Europe, damaging the global economy.
The unexpected outcome in Washington after days of
political wrangling amplified fear among investors, spurring
them to dump emerging market assets in favour of less risky
investments in government bonds or even U.S. dollars.
The costs of protection against debt defaults and
restructuring soared and borrowing rates among banks in Asia
jumped, reflecting the tensions in credit markets globally.
"Market meltdown is likely to continue unless an
alternative plan is passed, which may or may not happen this
week," Dariusz Kowalczyk, chief strategist at CFC Seymour in
Hong Kong, said in a note.
Japan's Nikkei share average <> closed down 4.1
percent at a three-year low, and the MSCI index of Asia-Pacific
stocks outside Japan <.MIAPJ0000PUS> fell 3.1 percent.
The Asia-Pacific index is down more than 17 percent in
September, the largest decline since October 1997 when the
region was battered by the Asian financial crisis.
The overnight failure of Washington's biggest and most
comprehensive bid to keep financial sector shockwaves from
tearing up the real economy handed the U.S. S&P 500 stocks
index <.SPX> its biggest decline since October 1987.
U.S. stock futures <SPc1> were up 1.5 percent and pointed
to a higher open on Tuesday.
LOSSES TRIMMED
September was laced with explosive events that have turned
Wall Street upside down and threatened the global financial
system, including the bankruptcy of Lehman Brothers <LEHMQ.PK>,
the U.S. government rescue of American International Group
<AIG.N> and the demise of the U.S. investment banking model.
Tighter rules on short-selling, combined with expectations
that U.S. lawmakers will eventually approve a rescue plan
helped many Asian stock markets fight back from their lows on
the day, but analysts expected broad risk reduction to continue
as investors pulled money out of the region.
Hong Kong's Hang Seng index <> was down 1.3 percent,
while South Korea's KOSPI <> pared early losses of 5.5
percent to close down 0.6 percent.
Emerging markets have been particularly hurt by this
so-called deleveraging in global markets. For example, the MSCI
emerging markets equity index <.MSCIEF> was down 1.8 percent on
Tuesday, outstripping the 0.8 percent decline on the
All-Country World index <.MIWD00000PUS>.
Asia's local currency bonds fared no better than the stock
markets, with State Street's ABF pan-Asia bond index fund
<2821.HK> down 1.85 percent to a two-year low.
U.S. RECESSION LOOMS?
Investors around the world have been scrambling to
eliminate any risk in their portfolios, loading up on
traditional safe harbours like short-term U.S. government debt
and gold.
Gold prices in the spot market were largely unchanged at
$904.60 an ounce <XAU=>, after rising 5 percent to touch a
two-month high overnight of $920 an ounce.
"The gold market is telling us that the world economy is in
peril," said Jeffrey Nichols, managing director of American
Precious Metals Advisors.
In the Treasuries market, two-year notes <US2YT=RR> fell
8/32 in price, lifting their yield 13 basis points to 1.76
percent from late in New York following the massive 46 basis
point drop on Monday.
Yields on the 10-year note <US10YT=RR> edged up 4 basis
points to 3.62 percent but were still down 23 basis points for
the week.
Another asset that has gained favour during times of
widespread uncertainty is the yen.
Though central banks outside the United States have had to
set up special currency swap programs to meet high demand for
U.S. dollar funding, investors have been turning to the yen as
a haven because of Japan's large external surplus.
The dollar dropped to a 4-month low near 103.50 yen before
edging back up to 104.18 yen <JPY=>. The euro was down 0.3
percent at 149.51 yen <EURJPY=>.
The dollar firmed, particularly against European
currencies, as investors held on to the relative safety of the
currency from the world's largest economy. The euro fell 0.4
percent to $1.4360 <EUR=>, while the dollar climbed 0.5 percent
against the Swiss franc to 1.0950 francs <CHF=>.
A gloomier outlook for the global economy weighed on oil
and industrial metals such as copper, tin and lead. U.S. crude
futures <CLc1> held around $96 a barrel after diving almost 10
percent the previous session, while London copper prices fell
to a nine-month low.
"In the U.S., we should expect a longer, deeper recession,
further consolidation of the banking sector, and further steps
by the authorities to help the situation," said Gerard Lyons,
chief economist and group head of global research with Standard
Chartered in London.
"The more the U.S. and the more China slows, the more Asia
will be hit and the greater the fall in commodity markets, with
all regions including Africa and the Middle East slowing."
(Editing by Lincoln Feast)
