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Banks led stock markets lower on Monday and safe havens such as bonds rallied as a weekend deal to rescue Credit Suisse and promises of liquidity from central banks could not stem fears that a bigger crisis is brewing in the financial system.

Asia gains for S&P 500 futures and European futures reversed as the sun rose in London. S&P 500 futures were last down 1%. European futures dropped 1.2% and FTSE futures fell 1.5%, and investors rushed to price in interest rate cuts.

In Hong Kong, HSBC stock dropped 7% in its worst session for six months. Standard Chartered shares fell nearly 8% and turnover was high. Tokyo banks dropped 1.9% and bank stocks led a 1.6% drop for MSCI's broadest index of Asia-Pacific shares outside Japan.

Over the weekend, UBS said it would buy Credit Suisse for 3 billion francs ($3.2 billion). The Federal Reserve, European Central Bank and Bank of Japan pledged to make it even easier to buy dollars, upping the frequency of supply operations.

But with some Credit Suisse bondholders in line to be left with nothing, and nerves running high after a week where concerns mushroomed that regional U.S. lenders to large systemic bank in the heart of Europe, investors do not feel like taking risks.

"This time last week, when we were talking about SVB and Signature, it was very different in that we were talking about just the depositors and not the quality of the assets," said Steven Major, global head of fixed income research at HSBC.

"This week we've moved over to Europe and we're looking at assets ... anyone who said last week you can't compare sub-prime mortgages and sub-prime bonds with this crisis - well, actually it's moved on," Major added.

Bonds whipsawed with the mood. Selling in Asia gave way to a rush to safety, driving the yield on two-year and 10-year Treasuries to the lowest levels in six months.

An early move out of safe-haven currencies fizzled and the yen rose 0.5%.

Fed funds futures surged as investors dialled down future rate cuts and began pricing in U.S. cuts as soon as June.

"It's pretty wild and there's a lot of volatility probably still to come," said Jason Wong, strategist at BNZ. 

'STABILITY RISKS'

Several nagging issues are in focus.

One is that despite liquidity support, deposit guarantees and - in the case of Credit Suisse direct borrowing from the central bank - have not been enough to cauterize the situation.

Another is that some junior bondholders appear to be left with nothing at all after Credit Suisse said such debts will be written down to zero - spooking holders of similar paper at other banks and raising the spectre of bank funding stress.

"Investors are trying to price out stability risks, but also having to process having their assets written down to save depositors," said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey.

"The key question is whether solvency or liquidity concerns are sufficiently addressed by bailout/merger attempts to make deposit runs stop. The answer isn't clear yet."

Rates pricing is also likely to remain volatile while there is concern over regional banks in the United States.

A U.S. official said on Sunday that deposit outflows had slowed and in some cases reversed. But First Republic also had its credit rating pushed deeper into junk status by S&P Global and elsewhere efforts to raise capital were hitting difficulties.