4th UPDATE: Asian Shrs Inch Off Their Lows Despite US News

(Recasts lead, adds quotes, updates levels)

SINGAPORE (Dow Jones)--Asian shares and currencies fell Tuesday but most markets came off their lows as the shock wore off from news the U.S. House of Representatives had voted down a proposed $700 billion bailout for the financial sector.

Sellers seemed exhausted by the recent heavy declines even as some investors were tempted to seek value.

Meanwhile, U.S. stock futures were about 1% higher in screen trade.

"Just as the casket began its descent, signs of life emerged in the Aussie market to claw its way back from 340 points down. Investors showed glimpses of optimism as sentiment was mirrored throughout Asia," said Martin Batur, deputy head of dealing at IG Markets in Australia.

However, analysts weren't willing to call a near-term bottom, and volume in many markets was low.

The continued flight to safety in Asia aided government bonds, the Japanese yen and gold, while hurting emerging market currencies and high-yielding currencies like the Australian dollar.

The Korean won fell to its lowest level since April 2003; the U.S. dollar was around KRW1,224.

Government and central bank officials around Asia rushed to reassure investors they had measures in place to cope with the large market volatility. Overnight, several central banks stepped up their coordinated liquidity provisions to try and keep credit markets pumped with cash and borrowing costs down.

"We'll watch the situation and respond calmly, in cooperation with the U.S., Europe and others," Japan's Finance Minister Shoichi Nakagawa was quoted as saying by Kyodo News.

Some were betting the sheer size of the overnight slide on Wall Street - where the Dow Jones Industrial Average dropped nearly 7% - would force Congress' hand in approving some sort of plan.

"There appears sufficient understanding in the House that financial aid is paramount to boosting market confidence and points to another attempt at passing relief measures" soon, said analysts at Standard Chartered Bank.

Many warned that some sort of plan needed to be approved before the week was out.

"Confidence is shot to ribbons and sentiment is dire," said David Buik, an analyst at BGC Partners.

Concerns remained about the European financial sector with Belgian Prime Minister Yves Leterme saying the governments of Belgium, France, and Luxembourg had agreed to inject EUR6.4 billion into embattled Franco-Belgian bank Dexia SA; that news followed a near-30% fall in Dexia shares on Monday.

European markets were falling at the open there with the French CAC-40 down 2% and London's FTSE 100 down 1.6%.

The big question being asked in trading rooms around the globe, given the spate of recent bank failures and rescues, was "what now?" - not just for financial markets, but for the broader economy.

Some said the bailout plan news could spur turmoil for several days, depending on when or whether another vote on the bill (or some form of the current bill) would be taken.

There was also growing talk on the chance of emergency interest rate cuts from central banks like the Federal Reserve.

"The case for large synchronized global rate cuts seems strong," said Rory Robertson, rates strategist at Macquarie Debt Markets. "Little else seems available at present to slow the 'adverse feedback loop' threatening to stall the global economy, or worse," he said.

Kansas City Federal Reserve president Thomas Hoenig though said it was important not to overreact to the turmoil, while repeating the need to focus on inflation risks.

Japan's Nikkei 225 ended down 4.1% at 11,259.86 after touching 11,160.83. Bank shares remained weak with Mitsubishi UFJ falling 4.7% and Mizuho Financial Group 4.1%, while exporters were hurt by the gains in the yen, with Toyota Motor falling 4.6%.

Korea's Kospi Composite finished just 0.6% lower at 14470.01 after dropping to 1376.72; authorities announced a ban on short-selling until the end of the year, and greater flexibility for share buyback programs. Exporters were helped by the sharp fall in the won with Hyundai Motor gaining 1.2% and Kia Motors climbed 2.8%.

Australia's S&P/ASX 200 ended down 4.3% at 4600.50, with weakness in energy and mining stocks; the market fell at one point to an eight-day low of 4540.70.

BHP fell 9.5% and Rio Tinto fell 11.5%, with Fortescue off 17% at it's lowest level since November 2007; among financials, Westpac down 7.2% and National Australia Bank down 5.6%.

New Zealand's NZX-50 finished 3.1% lower. AMN Amro Craigs investment adviser Nigel Scott said the fall should spur the Reserve Bank of New Zealand to deliver an inter-meeting rate cut; "it's a huge probability," he said.

Singapore's Straits Times Index was down 2.4% at 2305.75 after touching 2239.75, with some interset in property and commodity plays; stocks in Manila fell 1.5% after an inital slide of more than 6%, while the Malaysian market was 1.2% lower and the Thai market down 2.9%.

Taiwan's main index ended down 3.6% - after falling nearly 7% - with government-linked funds suspected buying.

Hong Kong's Hang Seng Index narrowed its declines, down 2.4% at 17,447.66 from 16,799.29 earlier, with the market to be shut there Wednesday for a holiday. Analysts at BOCI noted Hong Kong and Chinese banks, including HSBC, remained healthy, which could create some interest.

The Japanese yen was higher against the U.S. dollar, the euro, the New Zealand dollar and Australian dollar; but, like the stock market, the early moves were reversing with the yen off its highs.

Recently, the U.S. dollar was around Y104.20, off an early low of Y103.50; the euro was down near $1.4383 against the dollar, and Y150.10 against the yen.

Lead 10-year Japanese government bond futures were up 1.17 at 138.17 after rising to 138.69; the two-year note yield was down 9.5 basis points to 0.72%. Lead March three-month euroyen futures were 0.080 higher at 99.190.

U.S. Treasurys were slightly weaker after a rally in New York, with the two-year yield at 1.72% from 1.63%.

Credit default spreads were wider with the iTraxx Japan Series 10 trading out about 20 basis points from Monday's 157 basis points. More broadly, the Markit iTraxx Asia ex-Japan series 10 high-yield CDS index was quoted at 670-720 basis points versus 560-620 basis points Monday, and the investment-grade index at 232-242 versus 190-200 basis points.

Spot gold was recently at $902.80 a troy ounce after shooting up to a two-month high of $927.

Front-month Nymex crude was up 34 cents at $96.71 a barrel after falling heavily in New York.

-By Rosalind Mathieson, Dow Jones Newswires; +65-6415-4140; rosalind.mathieson@dowjones.com

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September 30, 2008 03:03 ET (07:03 GMT)

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