* 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)
