GLOBAL MARKETS-Stocks plunge, yen surges on financial panic

* Fed's Bernanke signals willingness to cut rates

* Japan's Nikkei falls 9.4 pct in biggest decline since 1987

* Yen edges up as global equities tumble to 4-year low (Repeats to additional subscribers) (Updates prices, adds credit market background, quotes)

By Kevin Plumberg

HONG KONG, Oct 8 (Reuters) - Asian stocks plunged, with Japan's Nikkei dropping by the most since 1987, while the yen surged on Wednesday as fears of a global recession snowballed with no sign of a coordinated response or an end to the worsening financial meltdown.

Government debt prices jumped as the equity selloff reached a fever pitch and investors snatched anything resembling stability on an increasingly grim outlook, especially after Federal Reserve Chairman Ben Bernanke warned turmoil in markets could cause U.S. economic activity to be subdued into 2009 and signalled a readiness to cut interest rates. [ID:nN07422198]

Major European stocks were expected to open sharply lower, based on indications from the futures market STXEc1 as the wave of selling moved overseas.

Credit markets brushed aside surprise policy easing by Hong Kong's monetary authority and a radical shift in U.S. central bank policy to allow it to lend directly to companies.

The cost of protection against debt default soared in Asia as the rates banks charge each other climbed, further prohibiting the flow of credit through the global money system. [ID:nSYD384401]

"The deteriorating outlook for the economy and the deepening financial crisis are pushing fears to their limit," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Japan.

Tokyo's Nikkei share average .N225 plummeted 9.4 percent, the largest single-day percentage decline since October 1987. That brought losses for the past five days to 19 percent.

Shares of Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) fell 11.6 percent after a company source said the world's biggest car maker will likely cuts its annual operating profit outlook. [ID:nT69616]

Australia's S&P/ASX 200 index slid 5 percent, a day after rallying on a much larger-than-expected interest rate cut by the country's central bank.

The MSCI Asia-Pacific index of stocks outside of Japan ..MIAPJ0000PUS was down 7.8 percent, the largest decline since October 1997, according to Reuters data.

The index has fallen a staggering 26 percent in a month and 49 percent so far this year, underperforming the MSCI all-country world index .MIWD00000PUS, which has fallen 37 percent year-to-date.

Hong Kong's Hang Seng index .HSI fell 5.5 percent to a 28-month low after a market holiday on Tuesday while Indonesian stocks .JKSE tumbled 10 percent before authorities called a trading halt.