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Temporary pauses in foreclosures have expanded among major lenders as the courts, lawmakers and state attorneys general investigate whether banks supplied shoddy paperwork to support evictions of delinquent borrowers.

While homeowners may cheer efforts to get tough with banks, an increasing number of analysts warn that that a blanket ban on foreclosures could further hobble the economy.

A major securities lobbying group said on Monday that a U.S.-wide foreclosure moratorium would be "catastrophic."

The Securities Industry and Financial Markets Association said foreclosure processing mistakes should be fixed but said dramatic nationwide action could unjustly impose losses on the investors who help provide credit to the $11 trillion U.S. mortgage market.

"It is imperative...that care be taken in addressing these issues to ensure that no unnecessary damage is done to an already weak housing market and, in turn, that there is no further negative impact on the economy," SIFMA Chief Executive Tim Ryan said in a statement.

Disclosures that some big mortgage processors filed affidavits without proper scrutiny in thousands of foreclosure cases has drawn calls from some prominent lawmakers and civil rights groups for foreclosures to be halted in all 50 states.

But it's not clear if any individual or single regulator has the power to impose a nationwide moratorium, with most mortgage regulation conducted on a state-by-state basis.

President Barack Obama has so far declined to back such calls, despite polls showing that voters angry about the sluggish economy and high jobless rate are set to punish his fellow Democrats in the November 2 congressional elections.

Investors who buy mortgage-backed securities free up money that can be used by lenders to make new loans.

The market for such securities nearly dried up during the height of the 2007-2009 financial crisis, but the instruments have rallied since March 2009 as investors bet depressed prices more than account for losses that will come as homes backing bad loans are liquidated.

Moody's Corp warned on Monday that most residential mortgage-backed securities could see losses increase because of delays in foreclosures.

Moody's said in its weekly credit outlook that foreclosure delays would impose higher carrying costs on loans and reduce the ultimate recovery amount once the properties are liquidated.

Bank of America, the nation's largest mortgage servicer, said on Friday it would temporarily halt foreclosures nationwide as it reviews its foreclosure processes.

JPMorgan and Ally Financial Inc's GMAC Mortgage have announced partial moratoriums, but some other leading mortgage servicers have said they have no plans for a systematic halt.

The Fed's November meeting is now the market's focal point, and minutes from its meeting on September 21, when it said it stood ready to provide more support for the economy and expressed concern about low inflation, are due at 2 p.m. ET.

The Australian dollar fell from near three-decade highs seen last week to $0.9792, but many traders still see the currency on track to hit parity and put Tuesday's falls down to short term profit taking.

Gold edged lower pressured by a stronger dollar, but expectations of further monetary easing by the U.S. Federal Reserve are likely to support the bull run in bullion. Spot gold inched down $1.6 to $1,351.35 an ounce in early trading reversing gains in the previous session.

Asian stocks dipped slightly with the MSCI Asia ex-Japan index .MIAPJ0000PUS down 0.87 percent in early trade.

China's central bank auctioned 22 billion yuan ($3.3 billion) of one-year bills in its open market operation on Tuesday at a yield of 2.0929 percent, unchanged from the last sale and in line with market expectations.

Traders had expected the People's Bank of China to keep the one-year bill yield steady because of its reluctance to send any market signals that it wants to lift benchmark interest rates.

The euro was down 0.2 percent in early trading at $1.3853 with one market player noting stops building in the $1.3830-35 area.

The dollar index .DXY was up 0.12 percent at 77.531, still close to its lowest in nearly nine months.

(Editing by Tomasz Janowski)

China temporarily raised reserve requirements for six large commercial banks, four sources told Reuters, a surprise move aimed at draining cash from the economy.

Thailand, also on edge about a rapidly rising currency that has alarmed exporters, said it may impose a tax on foreigners' bond purchases.

With interest rates in the developed world at record lows, investors have poured money into higher-yielding emerging market assets, driving up local currencies in the process.

Governments, afraid that rising exchange rates will hurt exports and stunt economic growth, have tried to limit currency appreciation, sparking fears of a "race to the bottom" that may trigger trade tariffs and a sharp decline in global growth.

"If each country insists on its own interest during the recovery phase, it will bring about trade protectionism and will cause the world economy very big problems," South Korean President Lee Myung-bak told foreign journalists during a lunch meeting at his residence.

World finance leaders made no headway on currency disputes at a weekend International Monetary Fund meeting, and Lee urged an agreement before his country hosts a G20 summit next month.

HOT MONEY

But China's central bank governor said Monday it will take time to correct the uneven pattern of global growth that has contributed to exchange rate tensions, warning that attempts at a quick fix could create more problems.

"People may not have that kind of patience, so they would like to see a quick changes in the balance, but it may cause a kind of overshooting," Zhou Xiaochuan said during a discussion with other central bank governors at the National Press Club.

U.S. and European officials hold that limiting emerging market currency gains is the main cause of imbalances and has urged China in particular to let its yuan rise more rapidly.

Analysts said China's reserve requirement hike should be seen as an attempt to slow massive foreign capital inflows rather than a prelude to tighter monetary policy.

"Hot money inflows have been rising. But I don't think this is a tightening move. It's just part of liquidity management," said Qing Wang, chief China economist at Morgan Stanley.

The move comes weeks ahead of a Federal Reserve policy meeting at which markets expect the U.S. central bank to begin a second round of quantitative easing, which would heap even more downward pressure on the U.S. dollar and send more money into developing economies, including China and Thailand.

Thai Deputy Finance Minister Pradit Phataraprasit told reporters the Cabinet may consider a bond tax on Tuesday, though he would not comment on local reports of a possible 15 percent withholding tax on capital gains on government bonds.

While the Fed is widely expected to start printing money again in November to jump-start a faltering recovery, Vice Chairwoman Janet Yellen does appear aware of the risks.

At a time of growing concern about the international repercussions of another possible round of monetary easing by the U.S. central bank, Yellen's comments suggested Fed officials are cognizant of the risks to its zero rate policy.

"It is conceivable that accommodative monetary policy could provide tinder for a buildup of leverage and excessive risk-taking in the financial system," Yellen said in prepared remarks to the National Association for Business Economics.

Countries from Latin America to Asia have complained rather loudly that the Fed's push toward renewed monetary easing is unduly pushing up their currencies against the U.S. dollar, hurting their competitiveness.

Yellen, until recently the president of the San Francisco Fed and a strong dovish voice at the U.S. central bank, did not directly address the outlook for the economy or monetary policy. Nor did she imply that the threat of bubbles, which has underpinned a string of dissents on the Federal Open Market Committee by Kansas City Fed President Thomas Hoenig, would be enough to dissuade the Fed from easing further.

Markets have all but priced in an expectation that the central bank will boost its purchase of Treasury bonds at its November meeting, an effort to prop up an ailing recovery that has left inflation at levels that some Fed officials consider dangerously low.

Employment, which along with price stability forms the central bank's dual mandate, has also been a key driver of policy. The country's jobless rate is currently hovering at 9.6 percent, and is expected to edge lower only slowly over the next few years.

Still, Yellen spent the bulk of her remarks reviewing the lessons for regulators from the financial crisis. One important thing to remember, she said, is that markets left to their own devices can cause tremendous instability.

"(Financial markets) were viewed as self-correcting systems that tended to return to a stable equilibrium before they could inflict widespread damage on the real economy," she said.

"That view lies in tatters today as we look at the tens of million of unemployed and trillions of dollars of lost output and lost wealth around the world.

The Securities Industry and Financial Markets Association said foreclosure processing mistakes should be fixed but warned against dramatic nationwide action.

"It is imperative, however, that care be taken in addressing these issues to ensure that no unnecessary damage is done to an already weak housing market and, in turn, that there is no further negative impact on the economy," SIFMA Chief Executive Tim Ryan said in a statement.

On Sunday, White House adviser David Axelrod said he was "not sure" about a national halt to foreclosures.

Disclosures that some big mortgage processors filed affidavits without proper scrutiny in thousands of foreclosure cases has drawn anger from Congress and advocacy groups, with some prominent lawmakers calling for foreclosures to be halted in all 50 states.

Bank of America (BAC.N), the nation's largest mortgage servicer, said on Friday it would temporarily halt foreclosures nationwide as it looks into reports of shoddy paperwork.

Other institutions, including JPMorgan (JPM.N) and Ally Financial Inc's GMAC Mortgage, have announced partial moratoriums but some leading mortgage servicers have said they have no plans for a systematic halt.

The health of the U.S. housing market is a key concern as the economy recovers fitfully from its worst downturn since the 1930s.

Politicians are acutely aware of voter anxiety as the congressional election looms on November 2 and regulators are under heavy pressure to prevent a repeat of the 2007-2009 financial crisis that began when the U.S. housing bubble burst.

(Editing by John O'Callaghan)