GLOBAL MARKETS - Stocks fall, yen up ahead of U.S. bailout vote

By Kevin Plumberg

HONG KONG (Reuters) - Asian stocks fell while the yen rose to a two-year high against the euro on Friday on fears the $700 billion financial rescue bill still needing final U.S. government approval may not be enough to keep the global economy from falling into recession.

The flow of credit remained practically frozen in money markets, leading to a scramble for U.S. dollar funding that has the currency on track for its largest weekly gain in 16 years against a basket of major currencies.

The euro remained under pressure after dropping to a 13-month low against the dollar on Thursday on indications the European Central Bank is leaning toward cutting interest rates after recent bank failures threatened the euro zone economy.

Raw materials prices tumbled on expectations that demand from big consumers such as the United States and China will fall. Copper prices were on track for a record decline this week, down around 14 percent, and oil was down 12.5 percent for the week, its biggest five-day drop since December 2004.

"Economic concerns are mounting and regardless of whether the bailout plan is accepted in the House later today this will not change," economists with Calyon said in a note.

"The U.S. dollar is set to maintain a firm tone in the Asian session, especially against European currencies as both economic and financial sector concerns mount."

Japan's Nikkei share average fell 1.2 percent, led by shares of car makers Honda Motor Co and Toyota Motor Corp following a big drop in U.S. sales earlier this week.

"With the U.S. auto sales down about 30 percent, it's become clear that financial problems are finally spreading to the real economy," said Takahiko Murai, general manager of equities at Nozomi Securities in Tokyo.