* Crude below $112 as storm weakens before landfall
* U.S. dollar climbs to highest since February vs euro
* Korea won recovers after government calls for calm
By Kevin Plumberg
HONG KONG, Sept 2 (Reuters) - Oil extended losses toward
$111 on Tuesday after Hurricane Gustav eased before slamming
into the U.S. Gulf Coast, pushing up the U.S. dollar to a
7-month high against the euro and causing a broad selloff of
commodities.
The South Korean won recovered after a steep decline on
Monday, supported by the government which said in a hastily
arranged meeting it had the will and ability to stop the
currency from weakening. However, stocks slipped further on
fears about a flight of capital from Asia's fourth-largest
economy. []
Economic deterioration and public unrest in the region
continued to take a toll on its political establishment.
Japan's unpopular prime minister resigned late on Monday ,
which had a limited impact on the equity and bond markets, and
a state of emergency was declared in Bangkok, which weighed on
the baht.
Crude's <CLc1> retreat, on top of a steep $4 fall on
Monday, weighed on U.S. corn and soy prices, which fell 3
percent after a U.S. holiday on Monday.
The euro was down a modest 0.1 percent at $1.4583 <EUR=>
after earlier dipping to around $1.4555, the lowest since
February 14.
The British pound was down 0.5 percent at $1.7921 <GBP=>,
extending losses after an 8.6 percent plunge in August.
Japan's Nikkei share average <> rose 0.45 percent, as
lower oil prices encouraged investors to buy beaten down shares
of companies in the technology sector after a sharp selloff on
Monday.
Investors were grappling with the implications of Fukuda's
resignation, which made him the second Japanese leader to
resign in less than a year and threatened policy vacuum as the
economy hangs on the brink of recession. []
"His support rate was already quite low and there weren't
many expectations for his policies, so the market isn't exactly
despairing," said Takahiko Murai, general manager of equities
at Nozomi Securities in Tokyo. "It's still too soon to say much
more. We need to know more about who will succeed him and what
sort of policies they adopt."
South Korea's KOSPI was down 0.1 percent <> after
earlier slipping to its lowest since March 2007.
The country's worsening balance of payments has made
investors nervous that nearly $7 billion of government bonds
held by foreign investors maturing next week will not be rolled
over.
"We think the selling spree is still an ongoing trend.
Moves to cut losses amid a heightening sense of crisis will
likely continue today," said Juhn Chong-kyu, a market analyst
at Samsung Securities in Seoul.
The MSCI index of Asia-Pacific equities outside of Japan
<.MIAPJ0000PUS> edged up 0.2 percent after earlier touching the
lowest since March 2007. The index has fallen 28 percent so far
this year.
Investors took refuge in the U.S. dollar, shying away from
slowing economic growth in Southeast Asia and in particular
political uncertainty surrounding Thailand.
The dollar rose 0.4 percent against the Thai baht to 34.42
after Thailand's prime minister declared a state of emergency
in Bangkok and gave the army control to quell long-running
protests.
"The baht is obviously under pressure today because of the
political troubles in Thailand -- and more specifically today's
escalation in tensions," said Callum Henderson, head of foreign
exchange strategy with Standard Chartered Bank in Singapore.
"However, the economic backdrop is not exactly constructive
either. Growth is slowing and inflation -- judging by the last
number -- is starting to come off again."
Central banks in Thailand, Malaysia and Indonesia were all
suspected to stepping into the currency market to defend their
falling currencies, dealers said.
(Additional reporting by Elaine Lies in TOKYO and Park
Jung-youn in SEOUL; Editing by Lincoln Feast)
