HONG KONG, China (Reuters) -- Asian stocks headed for their biggest weekly fall in nearly a decade on Friday, as stubborn credit fears drove investors away from risky trades despite a dramatic late rebound on Wall Street.
South Korea's KOSPI ended down nearly 7 percent Thursday.
The yen rose, industrial metal prices fell and safe-haven government bonds extended gains as worries that the current market turmoil will hurt global growth further hit investor confidence.
"The biggest concern for Asian markets is whether it will spur a U.S. economic slowdown that will therefore hit consumption," said Lim Chang-gue, a fund manager at Samsung Investment Trust Management in South Korea.
"If we see tangible signs of this happening, I'm afraid then a worldwide bear market will begin."
MSCI's measure of Asia Pacific stocks excluding Japan fell 2.5 percent by 0421 GMT at a fresh 4-month low.
The index was down 10.6 percent on the week -- its worst weekly performance since January 1998. It is now down almost 19 percent from its July 24 record high and year-to-date gains have been cut to just 3 percent.
Tokyo's Nikkei average dropped 3.3 percent after touching levels last seen in September and was down about 7 percent this week.
Major exporters such as Honda Motor, Canon Inc. and Toyota Motor all lost ground despite the late rally on Wall Street.
Speculation of a possible U.S. interest rate cut and talk that Bear Stearns, one of the largest U.S. mortgage bond underwriters, would get funding from a Chinese bank helped the Dow Jones industrial average rally over 300 points in the closing 45 minutes.
But Countrywide Financial Corp., the largest U.S. mortgage lender, again worried investors after saying it had drawn down an entire $11.5 billion bank credit line as the global credit squeeze limited its access to short-term cash.
"Everyone's still scared and many people want to cash out in the short term, so we'll see more selling even into next week," said Alex Huang, vice president at Mega Securities in Taiwan.
Financial stocks, which had risen after a rebound in their U.S. peers, pared early gains with Australia's Macquarie Bank now up a modest 1.8 percent. Mitsubishi UFJ reversed early gains to be down 0.9 percent.
In an effort to soothe credit markets, the U.S. Federal Reserve pumped $17 billion of reserves into the banking system on Thursday and said it stood ready to undertake further operations as need.
Australia's Reserve Bank Governor Glenn Stevens said fundamental forces would eventually reassert themselves in financial markets after some irrational behavior over the past few days.
But the Australian dollar continued to feel the heat despite intervention by the RBA overnight to restore some liquidity for the hard-hit currency, which had been a recent favorite among investors seeking higher returns.
The yen rose from late New York levels and remained within easy reach of overnight multi-month highs, as investors continued to unwind risky trades funded by the Japanese currency.
The dollar bought 112.61 yen after reaching a 14- month low around 112 yen, while the euro fetched 151.13 yen not far off a 9- month low near 150 yen.
The Aussie retested a near one-year low against the yen at below 88 yen
Shanghai copper and zinc futures dropped by their 4 percent daily limit but 10-year Japanese government bond (JGB) futures powered to 17-month highs.
"The JGB market is getting a boost from the risk reduction moves, and price swings are sharper in a market where major Japanese players are absent due to Japanese summer holidays," said a dealer at a Japanese securities firm. E-mail to a friend 
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