The state of US asset markets is a major determinant of appetite for higher risk Asian assets, especially debt instruments, which have fallen victim to the volatility on Wall Street which has undermined the region's improving fundamentals.

"The direction of swap spreads in particular is a worry forus in Asia... a bullish case for the region emerges only in the context of swap spreads climbing down," Raja Visweswaran, Bank of America's Asia securities research head, said in a client note.

Shorter dated credits are proving less volatile and traders say most activity will remain focused on three and four-year high quality Asian issues, at least until next week's anticipated US interest rate hike is announced.

The Bank for International Settlements (BIS) said on Friday lending to Asia fell in the second half of 1999, bringing it below levels outstanding to Latin America for the first time in seven years. The drop "must be seen in the context of Asia's cumulative current account surpluses and a reflow of foreign portfolio and direct investment, which have largely obviated the need for bank lending," the BIS said in a half-yearly report.

Banks in 18 major industrial countries reporting data to the BIS had $6.86 trillion outstanding in terms of international loans to all countries at the end of 1999, up about one percent from $6.78 trillion at end-June.Asia's international borrowings fell six percent to $271 billion as at end December from $287 billion at the end of June.

"BIS reporting bank exposures to Asia have fallen by about 30 percent since the peak of $391 billion reached in mid-1997, with (South) Korea, Thailand and Indonesia accounting for most of this decline," the BIS added.

International bank claims on Asian banks fell to 30 percent of overall outstanding loans at the end of December from 44 percent at mid-1997.Japan's credit enhancements on some sovereign bonds issued by emerging Asian economies could bolster regional capital markets.

Haruhiko Kuroda, Japan's vice minister of finance, said by developing a regional capital market, Asia would be able deploy its ample savings to secure more stable capital supply.

"Under the so-called New Miyazawa Initiative, we provide partial guarantees to bonds issued by Asian countries," Kuroda told reporters on the sidelines of an Asia Society conference in Shanghai. He did not specify the countries. The Miyazawa Initiative was a $30 billion financial aid package, announced in October 1998, for countries stricken by Asia's economic crisis.

Kuroda said the credit enhancement would not be backed by Samurai bonds as some market participants have speculated, but by debt issued by Japanese banks or corporations.

Indonesia said it has reached agreement with Japanese trade house Marubeni Corp on renegotiating debts owed Marubeni by Indonesian petrochemical firm PT Chandra Asri.

Indonesian Bank Restructuring Agency (IBRA) vice chairman Arwin Rasyid told reporters the $600 million would be repaid over nine years at an interest rate 2.5 percent above LIBOR.

Marubeni plans to swap $100 million of debt owed by the ailing petrochemical producer into equity. The Indonesian government is implementing a similar swap. After the restructuring, Rasyid said IBRA will own 80 percent of Chandra Asri and Marubeni 20 percent.

Investment bank JP Morgan said on Thursday it had created the first wireless communication platform for bond issuers and investors.

It said its SynDirect Wireless product allowed bond issuers to track investors' interest for pending debt issues remotely, using a Palm handheld computer in the United States or a WAP mobile phone in Europe and Asia. The impact of e-broking has been more gradual forbond markets than for equities, which are already widely traded by private investors online.