GLOBAL MARKETS-Raw fear pummels stocks, helps bonds

* Scramble for Treasuries pushes bill yields near to zero

* MSCI all-country world index at lowest since Nov 2005

* Morgan Stanley, WaMu reportedly on auction block

* U.S. investor 'fear barometer' at near 6-year high (Repeats to wider coding, with no changes to text)

By Kevin Plumberg

HONG KONG, Sept 18 (Reuters) - Asian stocks tumbled 3-7 percent on Thursday, with emergency actions by central banks and governments around the world failing to ease a financial crisis that has sent investors fleeing to government bonds.

The seismic shift on Wall Street this week continued to create a sense of global panic, with frenetic consolidation in the financial sector in the world's largest economy, sending the MSCI all-country world stocks index .MIWD00000PUS to its lowest since November 2005.

Investors piled into short-term U.S. Treasuries, pushing yields down close to zero as investors bailed from money market funds. Even the Federal Reserve had to receive a $40 billion injection from the U.S. Treasury to help it manage its balance sheet, after the Fed offered $85 billion in loans to rescue American International Group (AIG.N) on Wednesday.

Overnight, No. 2 U.S. investment bank Morgan Stanley (MS.N) and top U.S. savings and loan Washington Mutual WM.N were reportedly up for sale, and a source familiar with the matter said Britain's Lloyds TSB (LLOY.L) agreed to buy rival HBOS HBOS.L, reflecting the unstable landscape that has contributed to gold's 18 percent surge in the last week. [ID:nN17533580]

"Credit fears have now reached a climax. It's presumptuous to assume it would end in one day," said Harushige Kobayashi, head of research department at broker Securities Japan.

"The market ignores fundamentals and is now 95 percent driven by psychological factors."

The Chicago Board Options Exchange Volatility Index .VIX or VIX, Wall Street's main barometer of investor fear, closed on Wednesday at its highest level in almost six years.

Another measure of investor distaste for risk, the TED spread of 3-month interbank lending rates over 3-month U.S. Treasury bill yields blew out to more than 300 basis points, far exceeding levels reached during the U.S. savings and loan crisis of the 1980s.

Japan's Nikkei share average .N225 fell 3.6 percent to a three-year low early on Thursday, with shares in high-profile exporters such as Sony (6758.T) and Honda Motor Co (7267.T) the biggest drags.

The MSCI Asia-Pacific ex-Japan stocks index .MIAPJ0000PUS fell 3.9 percent to its lowest since July 2006. The index is down 39.3 percent so far this year.

Hong Kong's Hang Seng index .HSI dropped 6.6 percent to the lowest in two years, led by HSBC stock, down 5.9 percent.