* Crude near $111 as storm weakens before landfall
* Korea won falls despite government calls for calm
* MSCI Asia ex-Japan stocks index at 18-month low (Recasts, adds quote, updates prices)
By Kevin Plumberg
HONG KONG, Sept 2 (Reuters) - The U.S. dollar rose to a 7-month high against the euro on Tuesday, boosted by falling oil prices after a storm threat weakened and rife political and economic uncertainty in places such as Thailand and South Korea.
Deteriorating economic growth prospects and public unrest in the region continued to take a toll on its political establishment. Japan's unpopular prime minister resigned late on Monday, with limited impact on stocks and bonds, and a state of emergency was declared in Bangkok, which weighed on the baht.
The South Korean won extended this year's double-digit percentage fall against the dollar even though the government warned it had ability to stop the currency from weakening, with investors concerned about a flight of capital from Asia's fourth-largest economy. Equity markets fell to an 18-month low amid talk of a looming crisis. []
The sharp economic slowdown that began in the United States and hit developed markets in Europe and Japan now appeared to be tightening its hold on emerging markets.
"Political uncertainty in Asia is dollar supportive by default," said Sharada Selvanathan, currency strategist at BNP Paribas in Hong Kong.
"Global growth is slowing which is hurting exports, inflation remains persistent, central banks need to raise interest rates -- but the last thing that a government about to fall wants is higher interest rates. It's a vicious cycle," she said.
The euro fell 0.2 percent to $1.4570 <EUR=> after earlier dipping to around $1.4555, the lowest since February 14.
The British pound fell 0.6 percent to $1.7921 <GBP=>, trading at its lowest level since April 2006, on worries about the economic outlook.
Sterling has weakened by nearly 20 cents since the end of July, a stunning pace for a member of the Group of Seven rich nations.
Oil extended losses toward $111 on Tuesday in reaction to news that Hurricane Gustav had turned into a tropical storm after slamming into the U.S. Gulf Coast.
The governor of the state of Louisiana said Exxon Mobil Corp <XOM.N> and Shell Oil Co <RDSa.L> were both expected to ask for supplies from the U.S. emergency Strategic Petroleum Reserve.
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.
STATE OF EMERGENCY
Investors have taken refuge in the U.S. dollar, shying away from slowing economic growth in Southeast Asia and in particular political uncertainty in 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 of stepping into the currency market to defend their falling currencies, dealers said.
Japan's Nikkei share average <> was largely unchanged, caught between rising shares of beaten down technology companies after a steep selloff on Monday and falling exporter stocks.
Investors were grappling with the implications of the resignation of Prime Minister Yasuo Fukuda, the second Japanese leader to resign in less than a year, threatening a 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 benchmark KOSPI stocks index was down 0.65 percent <> at its lowest level since March 2007.
The country's worsening balance of payments has made investors nervous that foreign investors holding nearly $7 billion of government bonds due to mature next will repatriate the proceeds.
The MSCI index of Asia-Pacific equities outside of Japan <.MIAPJ0000PUS> slid 0.6 percent to an 18-month low. The index has fallen 28 percent so far this year. (Additional reporting by Elaine Lies in TOKYO)
