Marketmind: Contagion stations

FILE PHOTO: People pass by an electronic screen showing Japan's Nikkei share price index inside a commercial building in Tokyo

(Reuters) - A look at the day ahead in Asian markets from Jamie McGeever

The savage selling that has decimated world markets recently abated somewhat on Tuesday, but the relentless rise in U.S. interest rates and deepening fear of contagion from the British market mayhem loom large.

The 10-year U.S. Treasury yield is at a 12-year high and within a whisker of 4%, Britain's 30-year yield is above 5% for the first time in two decades and, according to Goldman Sachs, global financial conditions are the tightest since 2009.

Asian markets might take a crumb of comfort from the relatively stable close on Wall Street on Tuesday - as of 3:55 p.m. (1955 GMT), the S&P 500 was flat and the Nasdaq had risen 0.4% - but this masks the fact that the S&P 500 at one point hit a new two-year low on Tuesday and slipped deeper into bear market territory.

This will keep investors on the defensive and there's a gnawing feeling that, with rates and borrowing costs increasing so fast, something, somewhere will break.

Where and when that might be, no one knows. It may not happen.

But all eyes are on British markets, where sterling and government bonds are under intense pressure. The International Monetary Fund said on Tuesday it is "closely monitoring" developments and urged the government to rethink last week's fiscal package.

Graphics: UK 30-year gilt yield -

In Asia, meanwhile, the downward pressure on local currencies persists. Chinese regulators have asked banks to revive a counter-cyclical factor in their daily fixing rates for the yuan exchange rate, which could help slow the currency's decline.

And the yen finds itself back at 145 per dollar, not far from the 24-year low where the Bank of Japan intervened last week selling dollars for yen.

Key developments that could provide more direction to markets on Wednesday:

Australia retail sales (August)

Europe investigates 'attacks' on Russian gas pipelines to Europe

U.S. pending home sales (August)

Fed's Barkin, Bowman, Bullard and Evans all speak

(Reporting by Jamie NcGeever in Orlando, Fla.; Editing by Josie Kao)