Thirteen East and Southeast Asian countries agreed on Sunday to set up a $120 billion emergency fund for use in an economic downturn, the first independent move by Asia to shield itself from financial crisis.

Japan, the region's biggest economy, also announced a plan to supply up to 6 trillion yen ($61.54 billion) to support its neighbors in an economic downturn.

The initiatives were announced on the Indonesian island of Bali, on the sidelines of the Asian Development Bank's (ADB) annual meeting, and one analyst said they could lead to some optimism in regional markets on Monday.

This news is not a surprise but confirmation may be taken by the optimists as a reason to continue the recent rally, said Kirby Daley, senior strategist at Newedge Group in Hong Kong.

It's definitely a step in the right direction for Asia to wean itself from dependence on the West. However, implementation is unlikely to have a sustainable impact on Asian economies in the absence of a robust U.S. consumer.

While Asian banks largely avoided the credit crisis that tore through Wall Street and much of Europe, the region has since been hit by the downturn in the West, which has eroded demand for Asian automobiles, electronics and other exports.

The region's economies are likely to grow just 3.4 percent in 2009, the slowest pace since the Asian financial crisis a decade ago, the ADB has forecast. It sees growth recovering to 6.3 percent next year if demand rebounds.

China and Japan have each committed to provide 32 percent of the regional fund, known as the Chiang Mai Initiative. South Korea has committed to 16 percent, with the rest coming from the 10-member Association of South East Asian Nations (ASEAN).

The fund will offer emergency balance of payments support to any country hit with the type of capital flight that marked the Asian financial crisis of 1997/98.

The current global situation requires more concerted efforts to enhance confidence, maintain financial stability, and prevent further decline in economic growth, a joint statement by the region's finance ministers said.

The deepening global economic downturn, coupled with heightened risk aversion in financial markets, (has) adversely impacted trade and investment in the region.

SELF-RELIANCE

The fund reflects Asia's desire for self-reliance in crisis, said ADB Managing Director General Rajat Nag.

After the 1997 financial crisis, one lesson that Asia learned was you better be ready to depend on yourself.

If the region is going to be an economic growth center, it is also appropriate that it knows it has the resources and reserves to stand on its own feet.

By committing the same amount as Japan, China was also looking to assert itself in the region, one meeting participant said.

The details of the agreement reflect China's ascent in the economic community, said the participant, who declined to be identified because of the sensitivity of the topic.

The fund will be launched by the end of the year, and a surveillance unit to monitor the region's economies will be set up with the help of the ADB and the ASEAN Secretariat.

ASEAN includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

The countries will also set up a $500 million guarantee for local currency corporate bonds issued within the region.

Underlining the growing importance of the Asian regional bond market, Standard & Poor's announced on Sunday it was launching an ASEAN credit rating scale to increase transparency about the credit risk of regional borrowers.

ADB President Haruhiko Kuroda told the bank's annual meeting that Asia needs to develop its debt markets to better channel the region's massive savings into investments and stave off another crisis.

No discussions have yet been held on what currency the regional fund will be based on, but Japan's separate plan, announced by Finance Minister Kaoru Yosano, is aimed at promoting the use of the yen in the ASEAN region, Tokyo said.

Yosano said Japan will also introduce a framework to guarantee samurai bonds, yen-denominated debt issued in Japan by foreign entities, up to 500 billion yen ($5.13 billion).

The ADB itself also plans to ramp up lending to about $33 billion in 2009-2010, almost a 50 percent increase over 2007-2008, to counter the crisis. The Manila-based multilateral lender is funded by donations mainly from Japan, the United States and European nations.

(Additional reporting by David Dolan)

(Writing by Raju Gopalakrishnan; Editing by Hans Peters)

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