RPT-WRAPUP 3-China eases policy as Asia battles to shield mkts

(Repeats to additional subscribers)

* China lets bill rate fall in policy easing signal

* South Korea supplies dollars to stop bond rout

* Philippines props up peso, Taiwan says may buy stocks

* Global central bank move may not stop Asia market rout (Recasts, updates with central banks' concerted action)

By Karen Yeung and Yoo Choonsik

SHANGHAI/SEOUL Sept 18 (Reuters) - China signalled another policy easing on Thursday as Asian authorities sprang to the defence of tumbling currencies, stocks and bonds to prevent the upheaval on Wall Street from shattering regional confidence.

China let the yield on three-month bills drop for the first time in six months, South Korea tried to halt its biggest bond rout in over five years, the Philippines intervened to support the peso and Taiwan threatened to buy stocks with state funds.

From Hong Kong to India central banks pumped more than $31 billion in local currency into the banking system and markets whipsawed as bankruptcies and bailouts on Wall Street drove investors away from risky assets and squeezed funding.

The world's top central banks announced an offer to pump billions of dollars into global money markets to ease the dollar funding crunch at the end of the Asian day, but analysts said emerging markets would get relatively little relief.

"It's a much needed action and should help to relieve some of the intense stress within the financial markets. But in this panicky market, it will be quite impossible to quantify what will be sufficient," said Christy Tan, currency strategist at Bank of America in Singapore.

"Asian currencies are still very driven by equity markets movements. This appears to be a major influence over dollar price actions."

The move by the Federal Reserve, the European Central Bank the Bank of Japan and other central banks brought some relief to money markets, driving overnight dollar funding costs to 2 percent from as high as 8.5 percent in Asian trading on Thursday.

LOSSES

Money markets nearly seized up this week after Lehman Brothers filed for bankruptcy, Merrill Lynch lost its independence and U.S. insurance giant AIG was nationalised in an $85 billion government bailout.

The Asian Development Bank urged the region's policy makers and regulators to get down to business now to shield the banks from the turmoil triggered by U.S. mortgage defaults that have inflicted more than $400 billion in losses on Western lenders.

"Even if subprime-related losses have to date been lower than elsewhere, this is no guarantee recent events will not affect major Asian financial institutions," Haruhiko Kuroda, the president of the ADB said in Manila.

While Asian banks have largely escaped the worst of the losses from defaults on U.S. subprime home loans, the region -- with the exception of Japan classified as emerging markets -- is particularly vulnerable to bouts of risk aversion.

With the Shanghai Composite Index .SSEC down nearly 9 percent this week, the central bank let the yield on its three-month bills fall 4 basis points at auction having held it steady for six months. It also let the rate in its 28-day bond repurchase operations drop 4 basis points , the first fall this year.

Earlier this week, the central bank cut the benchmark bank lending rate by 27 basis points and eased reserve ratios, while letting its one-year bill yield fall at auction.

DBS Bank predicted in a research note on Thursday that the central bank would cut the one-year lending rate by a further 27 basis points in the fourth quarter.

STEM THE TIDE

Across the region central banks battled to stem the tide.

The Bank of Korea surprised markets by saying it was pumping dollars into the local swaps market. A spike in dollar funding costs had triggered a sell-off in Korean assets on fears of a local credit squeeze.

That failed to prevent investors from selling local bonds to raise dollars and the yield on benchmark 5-year treasury bonds KR5YT=KSDA shot up 29 basis points to end at 5.95 percent, the biggest daily gain since March 12, 2003.

"With everyone getting cold feet, it's hard to predict when the market will return to normal," said Kong Dong-rak, a fixed-income analyst at Hana Daetoo Securities.

The Seoul stock market's benchmark KOSPI shed 2.3 percent and the won KRW= tumbled 3.2 percent against the dollar on Thursday.

Eight out of nine currencies in emerging Asia tracked by Reuters fell on Thursday and traders said the Philippines central bank was in the market selling dollars to support the peso.

Taiwan, staring at a 10 percent slump in its stock market, warned it could use a state fund to prop up shares. [ID:nTPU001360]

Japan, Australia, India, Hong Kong and South Korea injected funds into money markets to prevent the Wall Street crisis from clogging the pipes of the world's financial system.