* U.S. government may end up with 40 pct stake in Citi-WSJ
* Dealers cut positions in gold, Treasuries, U.S. dollar
* MSCI Asia Pacific ex Japan stock index up from 3-mth low
* S.Korea is least attractive for investment in Asia-poll
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Feb 23 (Reuters) - Asian stocks rebounded and
gold fell on Monday after a report said the U.S. government
could end up owning as much as 40 percent of Citigroup as its
seeks to stabilise ailing banks, prompting some investors to
dip back into riskier assets.
U.S. equity futures <SPc1> rose 1.2 percent and financial
bookmakers said major European stocks were expected to open up
to 1.3 percent higher after the Wall Street Journal said Citi
<C.N> was in talks that could wind up saddling the government
with a big stake in the financial group.[]
Even after the company's stock price plunged 44 percent
last week, it remained unclear if the government would provide
fresh cash to the bank.
The market implications that a big government stake in a
major international bank would have for equity dilution,
cross-border capital flows and risk taking in general were far
from clear.
"It is reasonable enough to expect markets to remain
volatile and my suspicion is the rise in risk appetite that we
are seeing now could peter out in the U.S. session as it will
not be taken very positively," said Stephen Roberts, an
economist with Nomura Securities in Sydney.
Still, the three havens that investors mainly bought last
week on uncertainty about the fate of U.S. banks -- U.S.
Treasuries, gold and the dollar -- all dropped, as dealers sold
first and worried later about the consequences.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> rebounded after hitting a 3-month low and was
up 1.4 percent on the day. The materials sector was the only
one in the red, while the technology sector led the region's
gains.
Japan's Nikkei share average <> finished down 0.5
percent, after cutting earlier losses. The broader Topix
<> posted a fresh 25-year low though it fought back after
the Citi news broke.
A gloomy mood remained in Japan though after SFCG <8597.T>,
a high-interest lender to smaller firms, went bankrupt, as
tight credit choked small and medium-sized businesses.
[]
Hong Kong's Hang Seng index <> rose 2.3 percent, though
shares of HSBC <0005.HK> were up only 0.8 percent, lagging the
rest of the market ahead of the largest European lender's
results on March 2.
South Korea's benchmark KOSPI <> roared 3.1 percent
higher on the day after earlier trading at a two-month low, as
investors rushed to cover their bets against Korean stocks.
However, sentiment has turned rather negative on Korea as a
place of investment because of its vulnerability to demand from
the developed world. A Thomson Reuters poll of 32 fund managers
that oversee about $1 trillion in equities showed Korea was
viewed by more than a third of respondents as having the least
investment appeal in Asia.
CLARITY, PLEASE
In addition to further details on any potential changes in
Citi's capital structure, investors wanted more clarity on the
U.S. government's plan to fix the banking industry. CNBC on
Friday, citing unnamed sources at the Treasury Department, said
the White House planned to release this week some details on a
plan that was initially panned by global markets.
There is a growing view among investors that countless
fiscal stimulus packages around the world will inevitably
support the global economy but confidence in the banking system
must be the foundation of a recovery.
While the Wall Street Journal report produced more
questions than answers, dealers wasted no time in cutting their
bets on the U.S. dollar and gold.
Sharada Selvanathan, currency strategist with BNP Paribas
in Hong Kong, doubted the rising trend in the dollar on the
back of safe haven flows was over.
"Remember that when a bank gets nationalised, it will be
forced to handle business in a more domestically oriented
manner; this would mean that the nationalised bank would have
to pare back its business offshore. Repatriation flows would
prove to be dollar positive," she said.
The euro rose around 1 percent to $1.2925 <EUR=>, while the
dollar slid 0.5 percent to 92.95 yen <JPY=>.
Gold in the spot market <XAU=> fell 1.1 percent to $985.90
an ounce after rising to the highest since March 2008 on
Friday, $1,005.40. The precious metal has risen 12 percent so
far this year, bolstered by a lingering aversion to risk.
The benchmark yield on the 10-year U.S. Treasury note
<US10YT=RR> ticked up to 2.81 percent from 2.79 percent late on
Friday in New York.
(Editing by Kim Coghill)
