* Treasury yields rise after Fed to take 80 pct stake in
AIG
* Crude up $3, yen drops as some risky assets bought back
* Systemic risk curbed for now by Fed prop up of AIG
By Kevin Plumberg
HONG KONG, Sept 17 (Reuters) - Asia stocks rebounded and
oil extended gains to more than $3 a barrel on Wednesday after
the Federal Reserve said it would take over American
International Group in a dramatic about-face as victims of the
financial crisis kept piling up.
The Fed will provide AIG <AIG.N>, once the largest insurer
in the world, a bridge loan of $85 billion and take an 80
percent stake in the ailing company, shouldering the U.S.
taxpayer with more liabilities following the government
takeover of Fannie Mae and Freddie Mac about a week ago.
After reports about the plan surfaced, investors bought
back equities and U.S. dollars while selling the government
bonds they had accumulated in the wake of Lehman Brothers'
<LEH.P> chapter 11 filing on Monday. However, the stock market
rally across the region was still rather tame.
"I expect the markets will be a bit better today but that's
after a very rough period," said Peter Hilton, head of Asia
equity research with Royal Bank of Scotland in Hong Kong.
"People were a bit worried about their effective savings. So
relieving that pressure helps some," he said.
Japan's Nikkei share average <> rose 2.1 percent after
closing at a three-year low on Tuesday. Shares of Japan's top
bank Mitsubishi UFJ Financial Group <8306.T> outperformed the
broad market, rising 2.3 percent.
The MSCI Asia-Pacific ex-Japan stocks index <.MIAPJ0000PUS>
rose 2.4 percent after hitting a two-year low on Tuesday. It is
down 36 percent so far this year.
The rescue of AIG is the latest event in what has already
been one of the most tumultuous weeks in the history of finance
that has changed the face of the U.S. banking sector. Merrill
Lynch <MER.N> agreed on Monday to be bought by Bank of America
<BAC.N> for $50 billion.
Investors knocked the MSCI All-Country World equities index
<.MIWD00000PUS> to the lowest since December 2005 on Tuesday as
a flight from anything resembling risk in markets reached a
fever pitch. The driving fear was a bankruptcy by AIG would
trigger a catastrophic chain reaction of defaults in the global
credit market.
AIG shares have plunged 94 percent year-to-date.
"If AIG had gone belly up, you would have an unknown,
humongous number of default swaps cut off. What would that lead
to? We were already approaching some market disruption," said
Dan Fuss, vice chairman of Loomis Sayles in Boston. "This is a
huge relief to many parts of the financial markets."
The U.S. dollar rose 0.8 percent against the yen to 106.20
yen <JPY=> after sinking to a four-month low of 103.54 yen on
Tuesday. The euro <EUR=> was up 0.7 percent at $1.4212, boosted
mainly by the 15-nation currency's 1.5 percent recovery against
the yen to 150.97 yen <EURJPY=>.
Two-year Treasury notes <US2YT=RR> fell 12/32 in price,
driving yields up to 1.99 percent, from 1.79 percent late in
New York on Tuesday. Yields on 10-year notes <US10YT=RR> rose
to 3.56 percent, from 3.44 percent.
The November U.S. light crude future was up $3.20 to $94.35
a barrel <CLc1> after hitting a seven-month low on Tuesday.
(Editing by Lincoln Feast)
