* Asian shares ease, Shanghai tumbles on profit taking
* Fed statement awaited for rates and recovery prospects
* Oil rises towards $70 a barrel after U.S. crude stocks
fall
* Yen strengthens after strong gains the previous day
By Elaine Lies
TOKYO, Aug 12 (Reuters) - Asian stocks sagged on Wednesday,
with Shanghai shares tumbling to a four-week low, as investors
locked in profits and waited to hear what the Federal Reserve
has to say about prospects for U.S. economic recovery.
The Shanghai fall, set off by worries that a surge in
Chinese shares has outrun economic recovery and that a drop-off
in bank lending means less money flowing into shares, also
helped the yen strengthen against the dollar.
European shares were expected to be mixed following a
two-session retreat, though gains were seen likely for most
exchanges, with investors awaiting the Fed outcome.
The MSCI index of Asian markets excluding Japan
<.MIAPJ0000PUS> slipped 1.1 percent, still in retreat from last
week's 11-month peak.
China's central bank said on Tuesday that banks extended
355.9 billion yuan ($52 billion) in new local-currency loans in
July, down from 1.53 trillion yuan in June and a sharper fall
than many analysts had forecast. [].
A sizeable share of bank loans in the first half is
believed to have gone into the stock market, helping push the
Shanghai index up more than 80 percent as of last week.
"The rally in the (Shanghai) index has far exceeded the
speed of economic recovery," said Western Securities analyst
Cao Xuefeng.
"Yesterday's mixed economic data and sharp drop in bank
lending heightened such worries, while weak overseas markets
triggered the sell-off."
The Shanghai Composite Index <> fell 3.5 percent on
worries about a possible tightening of market liquidity
following the sharp drop in July bank lending. The losses
pressured Hong Kong's Hang Seng index <>, which fell 1.9
percent, coming down from a 12-month closing high the previous
day.
The Nikkei <> pulled back from 10-month highs, losing
1.4 percent.
Sharp Corp <6753.T> fell after an earthquake forced
supplier Corning Inc <GLW.N> to halt production of LCD glass at
a Japanese factory, while Astellas Pharma <4503.T> extended
losses after Novartis' launch of the first generic version of
its transplant drug triggered a ratings downgrade.
[] []
"A fall in Chinese stocks tends to bring down Japanese
stocks as well. Investors in Europe and the United States watch
China when making their investment decisions, with the whole
world now hugely depending on the Chinese economy," said
Kenichi Hirano, operating officer at Tachibana Securities.
In Seoul, the Korea Composite Stock Price Index <>
shed 0.9 percent, although shares in LCD maker LG Display
<034220.KS> rose on expectations of a glass shortage after the
Japanese earthquake disrupted production.
Australian stocks <> edged higher, boosted by
Commonwealth Bank of Australia Ltd <CBA.AX> as investors took
an optimistic view of its earnings results and outlook even
though the bank itself was cautious. [].
AHEAD OF FED
The Fed started its two-day meeting on Tuesday, with
expectations that it will leave benchmark interest rates near
zero and let a $300 billion programme to buy Treasury
securities expire on schedule in September as economic gloom
lifts.
But after a report showing U.S. firms continue to cut
inventories as they lack confidence in the economy, analysts
expect the Fed will try to dampen speculation about higher
interest rates while still supporting hopes that the makings of
a recovery are at hand.
Its statement is due at about 1815 GMT.
Wall Street fell after a prominent banking analyst warned
the sector's fundamentals had yet to improve and the drop in
wholesale inventories raised worries about recovery as U.S.
wholesalers cut inventories of unsold goods for the 10th month
in a row in July. []
"World share markets have been moving in tandem for a while
and there's growing concern that many have been overbought,
which may lead to a bit of adjustment after all the gains,"
said Masayoshi Okamoto, head of dealing at Jujiya Securities in
Tokyo.
The yen rose against the dollar, extending gains of the
previous day as investors liquidated yen short positions ahead
of the Fed on the view that the Japanese currency's slide after
last week's U.S. jobs data had run its course for now.
The dollar slipped 0.4 percent to 95.55 yen <JPY=> and the
Australian dollar dropped 1 percent to 78.73 yen <AUDJPY=R>.
The euro was steady at $1.4144 <EUR=>.
U.S. crude futures steadied below $70 a barrel <CLc1>
following a surprise crude stock drawdown in weekly inventory
data from the industry group American Petroleum Institute.
[]
U.S. Treasury debt prices held steady after rising in the
previous session, with the market waiting to see if the Fed
signals it will let its Treasury buying programme expire and
pausing ahead of a 10-year note auction later.
Spot gold was trading around 946.10 an ounce.
(Additional reporting by Charlotte Cooper, Aiko Hayashi,
Parvathy Ullatil and Claire Zhang)
(Editing by Kim Coghill)
