* Investors edge away from pure safety trades, but cautious
* Credit markets tense, confidence lacking
* U.S. Senate gears up to vote on $700 billion plan
By Kevin Plumberg
HONG KONG, Oct 1 (Reuters) - Stocks in Japan and Australia
rose on Wednesday and the yen steadied as investors edged away
from safety plays on hopes a salvaged Wall Street rescue plan
in Washington would stabilise banks and markets.
Gains in Japanese stocks pushed down 10-year Japanese
government bond futures <2JGBv1> 0.5 point to 137.04, after
earlier dropping to a 2-month low.
European stock index futures <STXEc1> <FDXc1> <FCEc1> rose
between 0.5 and 0.6 percent ahead of a vote in the U.S. Senate
on a $700 billion plan for the government to buy illiquid
securities.
U.S. political drama has whipsawed markets so far this
week. Expectations that Congress will pass something soon drove
a 5.3 percent rally in the S&P 500 stocks index overnight,
erasing more than half of Monday's market plunge after the
House of Representatives rejected the plan.
"Investors here already bet for the resumption of bailout
talks yesterday, and we are seeing market participants taking a
more cautious stance today ahead of the vote tonight," said Kim
Hyoung-ryoul, a market analyst at NH Investment & Securities in
Seoul.
The fight over the biggest effort yet by the U.S.
government to support the financial system comes at a time when
money markets are dysfunctional and banks are refusing to lend
to each other, which is clogging up the flow of credit and
potentially endangering the global economy.
Central banks have been providing billions of dollars in
liquidity, essentially putting the global financial system on
life support and hoping confidence will return to the shattered
bank industry.
Europe's banking industry was under fire after a second
bank had to be rescued. And, even if a deal is brokered in
Washington, it is not clear it would do much to stimulate the
U.S. economy.
Japan's Nikkei share average <> climbed 1 percent on
Wednesday after posting its biggest monthly decline in 8 years
in September. Shares in Canon <7751.T> rose 4.2 percent and
were one of the biggest supports to the index on Wednesday.
Australia's benchmark S&P/ASX 200 share index <>
advanced 4.2 percent but was not far above its lowest since
November 2005, hit only two weeks ago.
Shares of mining group BHP Billiton <BHP.AX> shot up 4.4
percent and Rio Tinto's <RIO.AX> stock jumped 11.2 percent
after an Australian regulator cleared BHP's proposed purchase
of Rio.
Many Asian markets were closed for holidays, including
China, Hong Kong and Singapore.
U.S. SENATE'S TURN ON BAILOUT PLAN
The U.S. dollar was steady against the yen at 105.98 yen
<JPY=>, and the euro was down 0.1 percent to 149.50 <EURJPY=>.
The dollar briefly touched a 4-month low against the yen on
Tuesday, but later surged across the board on a combination of
U.S. investors bringing money back home from overseas
investments and optimism about the U.S. bailout plan in
Congress.
The U.S. Senate agreed to vote on the financial rescue
package on Wednesday night that will include a sharp increase
in the amount of bank deposits insured by the federal
government. []
The euro <EUR=> was down 0.1 percent at $1.4105 after the
15-nation currency dropped 2 percent overnight.
European countries scrambled to support the banking system,
struggling under the weight of collapsed confidence and
sluggish lending conditions.
France joined Belgium and Luxembourg to inject 6.4 billion
euros ($9 billion) into Dexia <DEXI.BR>, while the Irish
government backed all its banks, covering up to 400 billion
euros in deposits.
"The recent interventions are likely to weaken European
government balance sheets, which would be a negative in the
long-term," Ashley Davies, UBS currency strategist in
Singapore, said in a note.
Short-term money markets however still reflected elevated
levels of stress. On Tuesday, the spread of 3-month London
interbank offered rates over overnight index swap rates widened
to records in dollars, sterling and euros.
The spread is critical in determining credit market
conditions because it reflects the premium the market demands
over anticipated benchmark central bank interest rates.
Investors will focus on whether these signs, which suggest
the financial crisis is far from over, will douse the latest
rise in global stock markets.
The unwinding of trades due to fears about the impact of
the financial crisis on the global economy pushed up oil
prices, with U.S. light crude for November delivery <CLc1>
rising $1.28 to $101.94 a barrel.
Spot gold <XAU=> gained 1.1 percent to around $879.30 an
ounce after dropping 4 percent in New York in its biggest
one-day percentage fall since August.
Generally, panic has turned to tense caution rather than
any full-blown hope for recovery.
"There is a strong belief that the U.S. Congress will pass
the rescue plan in a few days, so that's supporting prices,"
said Ryuichi Sato, analyst at Mizuho Corporate Bank in Tokyo.
"But the fundamentals for U.S. financial markets haven't
changed so there is still a lot of downside risk."
(Editing by Anshuman Daga)
