U.S. financial bailout vote looms; Asian markets slide

HONG KONG/WASHINGTON (Reuters) - A darkening economic outlook fuelled by the global credit crisis dragged Asian shares lower and added pressure for the U.S. Congress to approve a $700 billion financial industry bailout package later on Friday.

In Switzerland, UBS AG, hardest hit among European banks by its exposure to subprime-related holdings, said it will cut 2,000 investment banking jobs -- on top of the 4,100 positions cut in the past year -- and it was closing its commodities business.

Worries grew that even if Washington agrees on the massive rescue package, it will not be enough to resolve deeper-rooted weakness as new data showed that a U.S. recession is nearing and European Central Bank President Jean-Claude Trichet said Europe's economy was worsening.

U.S. payrolls data due to be released at 1230 GMT on Friday were forecast to show that businesses cut jobs for the ninth straight month in September, with 100,000 non-farm jobs expected to be lost, against a drop of 84,000 in August, according to the median in a Reuters poll of economists.

Stocks in Tokyo dropped 1.9 percent to their lowest close in three years, and elsewhere in Asia they were off by 0.85 percent despite optimism among U.S. House Democratic leaders that legislation to mop up illiquid bank assets would win approval.

In Europe, futures pointed towards a slightly higher open for stocks.

"Investors expect the U.S. House to approve the bailout, but even if that happens, it would have a neutral impact on the market as its effectiveness is still questionable," said Takahito Murai, general manager of equities at Nozomi Securities in Tokyo.

U.S. House Majority Leader Steny Hoyer said the bill to help rescue Wall Street will be sent to the floor of the House on Friday for debate and then put to a vote. Earlier, House Speaker Nancy Pelosi said she would not schedule the floor debate until she thought there were enough votes in hand to pass it.

On Monday, the House unexpectedly rejected a previous version of the bailout package, sending markets into a tailspin.

BLEAK PICTURE

New economic data painted a bleak picture. U.S. factory orders tumbled in August and the number of workers seeking jobless benefits rose in the latest week to a seven-year high.

Wall Street endured a dismal day on Thursday, as stocks dropped 4 percent and a seizing up in money markets drove a rally in the dollar. Latin American stocks and currencies tumbled on worries about the credit crisis and economic slowdown.

The European Central Bank, meanwhile, indicated it might cut interest rates for the first time in five years, but two Federal Reserve officials pushed back against market expectations of a big U.S. rate cut later this month, that monetary policy was already easy and inflation still a concern.

St. Louis Federal Reserve Bank President James Bullard and Kansas City Fed chief Thomas Hoenig both acknowledged the U.S. economy was likely to face some rough times ahead, but showed clear unease with the idea of lower rates.

"I think lowering interest rates right now, maybe, is not the right response," Bullard told an audience on Thursday at Indiana University-Bloomington.

The oil price fell on Friday, with London Brent crude dropping below $90 a barrel for the first time since Sept. 17 on mounting economic worries.

"Thursday's decline in the U.S. markets and the subsequent follow-through today in Asia underscore the need for this bill to pass," said Andrew Barrett, managing director and strategist with Citi Private Client Investment in Hong Kong.

"The bottom line is quite simple: the markets will rally on passage and sell off on any further delay," he said.

The economy and financial crisis loom as the hottest issues in U.S. elections, now just over a month away. Both presidential candidates, Republican Sen. John McCain and Democratic Sen. Barack Obama, voted for the package and warned of dire consequences if it fails the House.

In Thursday night's vice-presidential debate, Democratic nominee Joe Biden and Republican Sarah Palin both said the financial crisis reflected a failure of oversight but then sparred over responsibility for the mess.

"There was greed and there is corruption on Wall Street. And we need to stop that," said Palin, the governor of Alaska.

Sen. Biden of Delaware said: "If you need any more proof positive of how bad the economic theories have been, this excessive deregulation, the failure to oversee what was going on, letting Wall Street run wild, I don't think you needed any more evidence than what you see now."

Backers of the rescue plan, including U.S. Treasury Secretary Henry Paulson, called on members of the House of Representatives who voted down a similar measure on Monday to change their vote.

At the center of the storm, credit markets remained under deep stress. With banks fearful of lending to each other, direct bank borrowing from the U.S. Federal Reserve shot to a record high, averaging a staggering $368 billion per day.

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