RPT-GLOBAL MARKETS-No US bailout yet sends dollar, shares down
* US policymakers unable to agree on $700 bln plan
* Biggest ever US bank failure adds to gloom
* Asian money markets tighten as crisis spreads
* Central banks offer dollars to ease money markets (Updates prices, adds European outlook)
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 a snag and the biggest ever U.S. bank failure dashed hopes for a quick recovery.
Major European stock markets were expected to open down as much as 1.9 percent, according to financial bookmakers, and U.S. stock market futures pointed to a lower open on deep uncertainty about the fate of the White House rescue plan.
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. [ID:nSP335584]
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 105.65 yen JPY= and off 0.3 percent against the Swiss franc at 1.0860 francs CHF=.
The euro was up 0.1 percent to $1.4636 EUR=, cutting earlier gains but still a little more than 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 19/32 in prices, pushing down the yield to 3.79 percent from 3.84 percent late in New York.
The yield on the 3-month bill slipped 2 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.
With commercial banks hoarding cash and reluctant to lend to each other, central banks have stepped in to fill the void. In a coordinated move to ease money market tension, the European Central Bank and the British and Swiss central banks said they would offer tens of billions of dollars for one week.
In South Korea, the Finance Ministry said it would inject $10 billion or more into the local swap market until the middle of October to stave off persistent dollar funding shortages.
STRESS IN ASIA MARKETS
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 slightly from late Thursday to 275 bps, 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. 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 growing malaise ahead of further developments in Washington.
Japan's Nikkei share average .N225 finished down 0.9 percent and has traded in a very narrow range this week.
The MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS was down 1.7 percent and on track for a fourth consecutive week of declines.
Hong Kong's Hang Seng index .HSI fell 2 percent, with shares of Ping An Insurance (2318.HK), China's second-largest insurer, falling 9.7 percent. Ping An owns 5 percent of European financial firm Fortis FOR.BA, whose shares tumbled on Thursday on market talk the Dutch Central Bank asked a rival bank to supply Fortis with capital.
(For related Graphic, click here)
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 last down 1.5 percent.
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 a 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 61.5 percent chance Congress would approve the White House bailout plan by Sept. 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.
