* Asian stocks off lows as banks seen oversold
* European shares set for sharp falls
* Japanese government bond futures at 2-month high
* Caution remains on renewed signs of slowing economies
By Kevin Plumberg and Rafael Nam
HONG KONG, July 10 (Reuters) - Major Asian stock indexes
cut early losses on Thursday as banks gained on expectations
recent falls had been too severe, while more stable oil prices
also eased some of the recent inflation concerns.
Still, the mood remained decidedly cautious, with regional
government bond prices still supported on fears a credit crunch
will have a knock-on effect in a global economy that is already
reeling from rising inflation and slowing growth.
European index futures pointed to sharp falls, with the DJ
Euro Stoxx 50 futures <STXEc1> down 1.5 percent after weakness
on Wall Street overnight.
Signs of trouble abounded in Asia, with Singapore's economy
posting its biggest contraction in five years in the second
quarter, while Japan saw annual wholesale inflation in June hit
a fresh 27-year high. [] and []
The MSCI benchmark world equities index <.MIWD00000PUS> has
hit bear market territory this week, and is still down about 20
percent from an all-time high hit in November 2007.
"Unless we see some kind of concerted move downwards in oil
prices ... markets are going to remain extremely concerned that
we're going to face a large threat from inflation," said Angus
Gluskie, portfolio manager at White Funds Management in Sydney.
"We're going to continue to see bad debt levels escalate in
the banking sector, but that's not unexpected, and loan growth
rates are certainly coming down," he added.
Shares of companies in the Asia-Pacific region excluding
Japan <.MSCIAPJ> fell 0.2 percent on the day, and remained
close to lows reached in August 2007, when trouble in the U.S.
subprime mortgage industry turned into a global credit crisis.
Still, some of the region's major stocks posted gains on
the day.
Japan's Nikkei share average <> erased earlier falls
to post a 0.1 percent gain as lenders such as Mitsubishi UFJ
Financial Group <8306.T> rallied.
Banks also pulled out other Asian indexes from negative
territory, with South Korean stocks <> gaining 1.2 percent
and and Hong Kong <> adding 0.8 percent.
"Looking at a lot of the momentum indicators, they are in
oversold territory," said Lawrence Balanco, technical analyst
with CLSA in Hong Kong.
"Sentiment has been quite negative but we might be at an
extreme and seeing some consolidation and short covering with
oversold indicators being as low as they are," he said.
Among other gainers, indexes in Taiwan <> and Shanghai
<> rose under 1 percent each.
But other shares continued recent falls, with Australia
<> posting a 1.5 percent fall, while markets in India
<> and Singapore <.FTSTI> down less than 1 percent each.
BONDS STRONG
More stable oil prices helped the mood somewhat in a
volatile trading week tha that has seen crude prices drop
around 4 percent in a two-day period.
U.S. light crude inched up 0.2 percent to $136.34 a barrel
<CLc1> and is up over 40 percent so far this year.
But economic growth remains front and centre for some
investors, as reflected in stronger bonds.
Japanese government bonds climbed, pushing futures to
two-month highs at one point, as renewed credit jitters weighed
on equity markets and boosted the safe-haven appeal of debt.
Faltering world stock markets have deepened concerns about
the global and Japanese economies, and prompted Japan banks and
life insurers to return to bonds after enduring a fierce market
sell-off from late May to mid-June, analysts said.
"Falling U.S. stocks to new lows imply overall asset prices
there are falling as well, which in turn would deepen the
economic slowdown," said Tetsuya Miura, fixed-income strategist
at Shinko Securities.
"Such a view has been offsetting inflation worries and has
been behind the bond bull market since late June," he said.
September futures <2JGBv1> climbed as much as 0.65 point to
136.40, the highest since May 13, before retreating to 136.10.
Many traders were forced to cover their short positions in
futures when they rose above 136.00, analysts said.
The benchmark 10-year yield <JP10YTN=JBTC> fell 3.5 basis
points to 1.575 percent.
Stocks in the U.S. financial sector fell sharply overnight,
sucking the widely-tracked S&P 500 index <.SPX> down 20 percent
from an record high in October 2007 and confirming what has
indeed become a global bear market for equities.
The U.S. dollar was steady against major currencies after
falling the previous day on heightened geopolitical tensions
with Iran after the fourth-biggest oil exporter conducted a
long-range missile test.
The euro <EUR=> was at $1.5723, down 0.1 percent. Against
the yen, the dollar was up 0.2 percent at 106.94 yen <JPY=>.
(Additional reporting by Geraldine Chua in SYDNEY and Satomi
Noguchi in TOKYO; Editing by Lincoln Feast)
