SINGAPORE, March 16 (Reuters) - Markets took a moment's respite on Thursday after Credit Suisse said it would borrow as much as 50 billion francs ($53.7 billion) from the Swiss central bank to steady itself, but trade was very tense as investors worried where banking stress might show up next.
Asian shares fell but without the frenzied drops seen overnight in Europe. European futures were last up 2%, while S&P 500 futures rose 0.5%.
Any relief was tinged with fear of what may go wrong next.
A week ago a start-up lender in California failed and now a systemic bank in one of Europe's financial capitals is in enough trouble to seek authorities' help. Credit Suisse shares dropped 24% on Wednesday.
Safe assets like bonds, gold and dollars were in favour.
"I think we're getting into the hard hat territory again," said Damian Rooney, a dealer at Perth stockbroker Argonaut.
"The word contagion is knocking about...we're getting fear across the whole board here," he said. "The trouble is with the unwinding - you don't know what you don't know."
MSCI's index of Asia-Pacific shares outside Japan fell 1% to its lowest this year. Japan's bank shares recovered some even deeper early losses, but were last down 4% and the Nikkei dropped 1.3%.
Insurers, banks, miners and consumer stocks were among the biggest losers across Asia's markets as worries grow that a potential credit crunch can worsen a looming economic slowdown.
Selling pressure eased for commodities and buying in gold, bonds and dollars backed off but without really recovering any of the losses in growth-exposed assets or handing back much of the astonishing gains that have been seen in bond markets.
Bonds have soared while markets have radically re-priced the interest rate outlook, betting central banks will be quickly cutting rates while stability fears rattle the financial system.
Two-year U.S. Treasuries are eying their best week since 1987 and yields, which fall when prices rise, are down more than 66 basis points since Friday.
An index of bond market volatility - the ICE BofA MOVE index - has hit its highest level since the 2008 financial crisis.
'SOMETHING UGLY'
The European Central Bank's meeting later on Thursday looms as a big test of the bond rally, as the first scheduled policy announcement since bank jitters began in the U.S. last week.
ECB policymakers had flagged a 50 basis point hike and President Christine Lagarde was just this month saying it was very likely. But market pricing implies just a 10% chance of that happening now and traders are on edge about the outcome.
"We've got to get through ECB and see how that goes down. And then the impact of that may well impact on what we think about the Fed next week," said ING economist Rob Carnell.
"I think it's going to be a very volatile period until we get this out of the way...it feels like at these interest rate levels the risk of finding that you've lifted a stone and something ugly is underneath gets higher."
The euro and Swiss franc found some support from the central bank's help for Credit Suisse, steadying after steep overnight drops.
The euro last stood at $1.0601 and the franc at 0.9300 to the dollar. The flight to safety lent support to the yen and it rose about 0.5% to 132.75 per dollar.
The New Zealand dollar fell 0.4% to $0.6161 after growth data missed forecasts.
($1 = 0.9310 Swiss francs)
($1 = 0.9301 Swiss francs)
Editing by Shri Navaratnam and Kim Coghill
Source: Reuters