* Dow plunge to 21-month low rattles Asia investors
* Oil at $140 a worry for many companies, policymakers
* Nikkei set for biggest first-half decline in 13 years
(Updates with Hong Kong and China stock markets, adds
comments)
By Kevin Plumberg
HONG KONG, June 27 (Reuters) - Asian stocks dropped and
safe-haven government bonds rose on Friday after shares plunged
on Wall Street and oil prices shot above $140 a barrel,
aggravating investors' fears of high inflation and slowing
economic growth.
Japan's Nikkei share average was on course for the worst
first-half performance since 1995, when the country was dealing
with upheaval in its financial sector. Investors scrambled to
the relative safety of assets like gold, whose price overnight
rose to the highest in a month, on concern that the U.S.
economy is teetering toward a recession.
European markets were set to open lower, financial
spreadbetter Cantor Index said, with Britain's FTSE 100 <>
expected to fall 0.4 percent.
Stocks with brand names known well overseas such as Honda
Motor Co <7267.T>, Sony Co <6758.T> and Samsung Electronics
<005930.KS> tumbled following a 3 percent drop in the Dow Jones
industrial average <> to a 21-month low.
Goldman Sachs was one of the triggers for negative
sentiment after the brokerage forecast more credit-related
write-downs at Citigroup <C.N> and Merrill Lynch & Co <MER.N>
and urged investors to sell struggling automaker General Motors
<GM.N>.
"Every negative market factor possibly thinkable is in the
picture, and with the U.S. selloff thrown in on top of that,
panic-selling has been triggered," said Oh Hyun-seok, a market
analyst at Samsung Securities in Seoul.
All but 15 of the 225 stocks on Japan's Nikkei share
average were declining, with the overall index down 2.2 percent
<>.
The MSCI index of stocks in the Asia-Pacific region
<.MIAPJ0000PUS> outside of Japan fell 2 percent to a
three-month low, while the pan-Asia index declined 2 percent
<.MIAS00000PUS> also to the lowest since March.
The Asia index was set for the biggest first-half decline
since 1992 when both the Japanese and U.S. economies were
struggling.
Hong Kong's Hang Seng index declined 2 percent <>, with
China Mobile the biggest weight on the index after Merrill
Lynch downgraded shares of the world's largest wireless carrier
to "neutral" from "buy."
China's main stock index <> fell 4 percent on fears
about the domestic market's ability to absorb new shares from
upcoming IPOs. The Shanghai composite index was down a whopping
47 percent so far this year.
OIL WOES
Oil prices were trading slightly lower around $139 after
rising to a record high above $140 a barrel on comments from
Libya that said it was studying possible cuts in output in
response to potential U.S. actions against OPEC countries.
Crude has surged 45 percent so far this year, raising costs
for businesses, consumers and governments and confounding
central banks that are struggling to balance rising global
inflation with economic sluggishness.
Even Japan, which battled deflation for years, found that
annual consumer inflation accelerated to a decade-high in May
on surging energy costs, and household spending dipped as the
job market stagnated, darkening the outlook for the world's
second-largest economy.
Investors continue to treat as radioactive assets from
countries with high and rising inflation, such as South Korea.
State Street Global Markets analysts said in a report that
cross-border investment in Korea, where authorities have been
spending billions of dollars to prop up their currency, in the
last month has been higher 89 percent of previous one-month
periods.
"This likely represents the biggest intervention in FX
markets by the Korean authorities since the Asian crisis," the
analysts said.
The benchmark 10-year Japanese government bond yield
<JP10YTN=JBYC>, which moves inversely to the price, fell 4
basis points to 1.60 percent, having fallen more than 20 basis
points in the last two weeks.
The dollar recovered slightly against the euro after
hitting a three-week low overnight. The euro was at $1.5730
<EUR=>, down 0.1 percent, but near Thursday's high just above
$1.5760.
Against the yen, the dollar was at 106.99 yen <JPY=>, up
0.2 percent.
"Sentiment for the dollar has turned bearish as a drop in
stocks and record highs in oil prices reinforced worries about
the financial sector and the economy," said a senior trader at
a European bank.
Only a day ago Asian shares were supported by comments from
the Federal Reserve downplaying the potential for a deeper U.S.
economic slowdown, but crude prices and volatility in equity
markets are causing some investors to question that
supposition.
Fresh U.S. economic data also painted a gloomy picture. The
government reported that a four-week average of new jobless
claims, a measure of underlying labor trends, rose to its
highest since October 2005 in the aftermath of Hurricane
Katrina.
Sales of previously owned U.S. homes rose in May and the
glut of homes for sale shrank, but prices were off sharply from
a year ago, suggesting the housing sector remains a big weight
on the economy.
The data prompted investors to reduced their expectations
for a Federal Reserve interest rate rise this year, putting
more pressure on the ailing dollar.
Gold <XAU=> slipped 0.5 percent to $911.55/912.55 an ounce
but overnight rallied to $917.20 -- its highest level since May
27.
