* US policymakers fail to find agreement on $700 bln plan
* Biggest ever US bank failure adds to gloom
* Asian money markets tighten as crisis spreads
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By Kevin Plumberg
HONG KONG, Sept 26 (Reuters) - Asian stocks and the U.S.
dollar fell while Treasuries rose on Friday after talks over a
$700 billion plan to save the financial system hit problems and
the biggest ever U.S. bank failure dashed hopes for a quick
recovery.
JPMorgan Chase & Co <JPM.N> bought certain Washington
Mutual Inc <WM.N> assets for $1.9 billion after the largest
U.S. savings and loan was closed overnight by a U.S. regulator.
[]
The deal, the latest in the last few weeks that have shaken
up the financial sector, showed how unstable the bank industry
is and why stakes in agreement on the bailout plan are so high.
The U.S. dollar weakened against the yen and Swiss franc,
two currencies associated with stability, as a bipartisan deal
to get what is called the Troubled Assets Relief Program turned
into a law may have to wait until at least the weekend.
"We'd have to pinpoint dollar weakness on the TARP plan and
overnight there has been no progress on that. In fact it seems
to be getting bogged down," said Jan Lambregts, head of Asia
research with Rabobank Global Financial Markets in Hong Kong.
"The Congress doesn't really want the plan -- no one really
wants the plan -- but the alternative is too bad to
contemplate."
The dollar was down 0.7 percent against the yen at 105.70
yen <JPY=> and off 0.5 percent against the Swiss franc at
1.0834 francs <CHF=>.
The euro was up 0.3 percent to $1.4660 <EUR=>, about two
cents away from a one-month high hit on Monday.
U.S. Treasury debt prices rose, with the most prominent
gains in long-maturity bonds. The 10-year note <US10YT=RR> rose
16/32 in prices, pushing down the yield to 3.805 percent from
3.84 percent late in New York.
The yield on the 3-month bill slipped two basis points to
0.75 percent <US3MT=RR> as investors continued to pile into the
very short-end of the market in search of liquidity and safety.
STRESS IN ASIA MARKETS
Money markets have stabilised somewhat but lending between
banks remained sluggish and confidence low. The spread of
3-month eurodollar rates over 3-month U.S. Treasury bill
yields, also known as the TED spread <TED>, widened a bit from
late Thursday to 275 basis points, but is lower on the week.
The spread is used as a gauge of risk aversion and
tightness in short-term lending.
Short-term U.S. dollar borrowing rates among banks have
been relatively stable this week after a series of currency
swaps were set up with the Federal Reserve and persistent
liquidity injections.
However, money markets across Asia showed evidence of
increasing stress. In Singapore, 3-month interbank rates jumped
to 3.77 percent <SIUSD3MD=>, the highest since January 2008.
Hong Kong's 3-month interbank rates eased slightly to 3.39
percent after hitting a 2008 high on Thursday of 3.80 percent
<HIHKD3MD=>.
Equity markets reflected little conviction ahead of further
developments in Washington.
Japan's Nikkei share average <> was down 1.3 percent
and has traded in a very narrow range this week.
The MSCI index of Asia-Pacific stocks outside of Japan
<.MIAPJ0000PUS> was down 1.8 percent and on track for a fourth
consecutive week of declines.
Hong Kong's Hang Seng index <> fell 1.5 percent, with
shares of Ping An Insurance <2318.HK>, China's second-largest
insurer, falling 10 percent. Ping An owns a 5 percent stake in
European financial firm Fortis <FOR.BA>, whose shares tumbled
on Thursday on market talk the Dutch Central Bank had asked
another bank to supply Fortis with capital.
U.S. stock market futures extended a decline after a
late-night White House session between Treasury Secretary Hank
Paulson and congressional leaders ended in partisan gridlock.
The S&P 500 future <SPc1> was down 1.5 percent.
Gold <XAU=> climbed 0.7 percent to $881.65 an ounce, but it
remained around $28 below a seven-week high hit on Tuesday.
The JPMorgan purchase of WaMu assets cleared away some of
the risk that a failing bank could drag others down with it but
bickering over the financial bailout in Washington only
worsened a sense of dread about the economic outlook.
"What's really required at the moment is U.S. Congress to
step forward and show united front on the bailout plan. That's
really where the uncertainty is at the moment, that's really
what will give markets a catalyst for turnaround," said Savanth
Sebastian, equities economist with Commonwealth Securities in
Sydney.
The online prediction market Intrade reflected a 72 percent
chance Congress would approve the White House bailout plan by
September 30, down from a better than 90 percent chance on
Thursday. Many congressional officials will leave at the end of
the month to campaign for the presidential election in
November.
(Editing by Lincoln Feast)
