Asia stocks slip, risk aversion grips for U.S. debate

By Wayne Cole

SYDNEY (Reuters) - Uncertainty gripped Asian markets on Tuesday as investors braced for a potentially pivotal U.S. presidential debate by shunning stocks while favouring safe haven bonds and the yen.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.3 percent in early trade, while South Korea fell 0.6 percent.

Japan's Nikkei <.N225> dropped 1 percent as a higher yen threatened exporter sales and profits.

The debate between Democrat Hillary Clinton and Republican Donald Trump starts at 0100 GMT and could have a big impact with the race seemingly so close.

Markets have tended to see Clinton as the candidate of the status quo, while few are sure what a Trump presidency might mean for U.S. foreign policy, trade and the domestic economy.

On Wall Street, the Dow fell 0.91 percent, while the S&P 500 lost 0.86 percent and the Nasdaq 0.91 percent. The pan-European STOXX 600 index <.STOXX> also fell 1.6 percent to a one-week low.

Big banks led the declines after Deutsche Bank slid to a record low on concerns it might need to raise more capital to meet $14 billion in U.S. fines.

"There's a thing called Trump thermometer," said David Bloom, London-based global head of forex strategy at HSBC.

"If you want to know who won the presidential election, don't go to Twitter or Facebook. Just look at the dollar/Mexico peso ."

The peso has hit record lows in recent days on concerns a Trump victory would threaten Mexico's exports to the United States, its single biggest market.

"If Clinton wins, you will get a big rally in the peso, and reasonable rallies in emerging markets," he said, while if Trump gets the nod it should benefit safe-havens such as the yen, the euro and the Swiss franc.

The dollar was already down at 100.34 yen and threatening a psychological bulwark at 100.00. The euro was firm at $1.1252 .

Other safe havens include U.S. Treasuries which caught a bid ahead of the debate and pushed longer-term yields to three-week lows.

In commodity markets, oil steadied after bouncing 3 percent on Monday as the world's largest producers gathered in Algeria to discuss ways to tackle a crude glut that has battered prices for two years now.

Brent crude eased back 29 cents to $47.06 a barrel, while U.S. crude dipped 27 cents to $45.66 per barrel.

(Editing by Jacqueline Wong)