Asian stocks drift lower, U.S. dollar dips

Asian stocks fell and the U.S. dollar dipped against major currencies on Thursday, pressured by doubts over the U.S. government's proposed $700 billion bailout plan and worries about the economic fallout from the crisis.

Gold gained, rising toward Tuesday's seven-week high, and short-term government debt prices climbed on concerns the U.S. bank rescue may be insufficient to deal with the turmoil.

Crude oil futures held steady near $105.70 per barrel.

The euro rose 0.6 percent from late U.S. trade to around $1.47 while the dollar index, which tracks the currency's performance against six major currencies, dropped 0.5 percent. The dollar fell slightly against the yen.

"The bailout offers some respite for the financial sector but does little to change the economic outlook, which continues to deteriorate," said Dwyfor Evans, currency strategist at State Street Global Markets in Hong Kong.

"If the bailout plan disappoints in the coming days it should give a boost to the yen's safe-haven status relative to the dollar," he said in a note.

Warren Buffett's $5 billion bet on Goldman Sachs and the Federal Reserve's new currency swap lines with more central banks helped restore some investor confidence in the dollar, but the buying interest was still limited by worries about the U.S. economy, analysts said.

Uncertainty about the $700 billion bailout plan weighed on U.S. stocks, knocking the Dow Jones industrial average and the broader-based S&P 500 index by 0.3 percent and 0.2 percent respectively.

Asian markets picked up Wall Street's cue.

The MSCI index of Asia-Pacific stocks outside of Japan fell 0.6 percent by 0130 GMT, though it remained well above a two-year low hit last Thursday.

Japanese shares also lost ground, with the Nikkei average falling 0.8 percent by 0150 GMT.

The U.S. bailout package unveiled late last week triggered a temporary rally in global stocks but concerns over when Congress will approve the plan and uncertainty about its final form quickly eclipsed that optimism.

Bush administration officials warned an angry Congress on Wednesday that the U.S. financial system would sink into Great Depression-style chaos unless it passed the bailout plan.

President Bush added his voice to the warning, saying an economic disaster loomed if Congress failed to act swiftly.

A bleak assessment of the U.S. economic outlook from Fed Chairman Ben Bernanke on Wednesday bolstered the view the U.S. central bank will lower its benchmark interest rates again by year-end.

The Fed cut its benchmark federal funds rate to 2 percent from 5.25 percent in a series of moves starting in September 2007 after the global credit crisis blew up.

Short-term U.S. Treasury debt was in demand, suggesting funding needs once again have moved to the forefront of investors' minds. The yield on the 1-month bill slipped to a mere 10 basis points, down from 12 basis points late in New York on Wednesday.

The rate on overnight dollar funds in Asia held steady to 2.5-3.5 percent from a peak of about 10 percent hit last week, signaling improved liquidity conditions after central banks have pumped billions of dollars into the money market in recent days.

Gold prices rose as far as $888.45 per ounce, up about 0.8 percent from New York's close on Wednesday.