HONG KONG -- The cost of protection against a default in Asian debt surged on Monday, especially on South Korea, as global growth concerns deepened after weak US jobs data and as the financial crisis intensified in Europe.

Regional bond spreads also widened on uncertainty ahead of a series of auctions later in the day that will determine the value of credit default swaps (CDS) backed by the debt of Fannie Mae and Freddie Mac, in what will be the largest settlement ever in the market.

Spreads widened even after the US government enacted a $700-billion bank bailout on Friday, amid uncertainty about whether it will be enough to contain the spreading crisis.

The iTRAXX Asia ex-Japan high yield index, a key measure of risk aversion, surged to 710 basis points (bps) compared to the 655 bps around midday in Asia on Friday. The index was offered at 760 bps.

The equivalent investment-grade index rose to 240 compared to 228 on Friday.

"It's getting worse despite the passing of the bailout plan ... People are not sure whether the package can help the financial system from collapsing," said a Singapore-based fund manager for a major foreign asset management firm.

"Most investors are staying on the sidelines. We prefer to hold on to cash," he added.

Liquidity in Asian credit markets has dropped since Lehman Brothers collapse in September in a deepening financial crisis that is claiming victims in the United States, and now, Europe.

Over the weekend, Germany offered a blanket bank deposit guarantee as it clinched a deal to rescue lender Hypo Real Estate, while regulators from Washington to Seoul are taking their own steps to ensure the stability of financial firms.

The crisis has been accompanied by a spate of bearish economic indicators. Data on Friday showed US employers cut 159,000 jobs in September, marking the ninth consecutive monthly reduction and the deepest in 5-½ years.

KOREA STILL SUFFERS

In Asia, countries that are most reliant on external financing and those with weak current account positions have been among the most punished, including South Korea, India and Indonesia.

South Korea's five-year CDS, or insurance-like contracts that protect against defaults, traded at 240 bps, roughly inline with levels on Friday, though spreads had at one point narrowed to around 225 during US trading on Friday.

Asia's fourth-largest economy has seen spreads surge amid a widening current account deficit -- which hit a record in August -- and its reliance on short-term external financing.

South Korea said on Monday its banks were having trouble raising foreign currency funds and it tried to reassure markets as the won dropped to its lowest since 2002 and the stock market tumbled nearly 5.0 percent.

"It's going to remain more difficult for Korean companies to obtain additional financing and this is why I would expect the Korean won to remain a little bit under pressure," said Sebastien Barbe, a senior economist at Calyon in Hong Kong.

"It's not easy to find an obvious solution to these problems."

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