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(Updates prices with close of Japanese stock market)
By Kevin Plumberg
HONG KONG, June 5 (Reuters) - Oil prices fell below $122 a
barrel on Thursday, down for a third day as the U.S. dollar
climbed and fears over demand grew after India and Malaysia
raised fuel prices, weighing on resource-related shares.
Stocks in Malaysia <> had the biggest single-day
decline in 12 weeks, leading Asian equities 0.7 percent lower,
according to an MSCI index <.MIAS00000PUS>.
UK stocks were expected to open 16 to 20 points lower,
tacking more losses after Wednesday's 1.5 percent decline,
according to financial bookmakers. European shares were also
set to fall.
Governments in Indonesia, the world's fourth most populous
country, Sri Lanka and Taiwan also cut their budget-draining
fuel subsidies last month at the risk of pushing up inflation
and depressing consumer spending.
"Weaker demand is the main concern now," said Tetsu Emori,
fund manager at Astmax Co Ltd in Tokyo. "With domestic prices
in these emerging countries now quite high, people will cut
their consumption and that is a worry for the market."
Oil prices have also been weighed by the recovery in the
dollar, which has been bolstered by the growing view the
Federal Reserve is more likely to raise rates to fight
inflation than cut them to spur growth.
Fed Chairman Ben Bernanke startled markets for the second
time this week with his candor about price pressures, saying on
Wednesday that rising long-term inflation expectations were a
"significant concern." []
The July U.S. light crude contract <CLc1> edged below $122
a barrel on Thursday, off 10 percent from an all-time high two
weeks ago.
The dollar rose for a third straight day against the yen,
up 0.3 percent to 105.54 yen <JPY=>. The euro was largely
unchanged ahead of a meeting of the European Central Bank, at
$1.5425 <EUR=>.
The New York Board of Trade's index of the U.S. dollar
against major currencies rose to a one-month high <.DXY>.
That set the stage for the European Central Bank, which
will meet to set policy later. The ECB is widely expected to
keep its benchmark interest rate unchanged in the face of
sluggish growth, though inflation in the euro zone is running
near record highs.
INFLATION BEGETS FEAR
Japan's Nikkei share average <> finished down 0.65
percent, hit by industrial robot maker Fanuc Ltd <6954.T>, but
within striking distance of a 5-month high hit on Monday.
Hong Kong's Hang Seng index <> climbed 0.5 percent,
while Korea's KOSPI <> ended nearly unchanged on the day.
Australia's S&P/ASX 200 <> index fell 1 percent,
dragged by heavyweight resource firms such as BHP Billiton Ltd
<BHP.AX> and Woodside Petroleum Ltd <WPL.AX>.
The MSCI index of Asia-Pacific stocks outside Japan fell
0.6 percent <.MIAPJ0000PUS>.
Stocks in Malaysia were the biggest decliners in Asia, with
the Kuala Lumpur composite index tumbling 3 percent after the
government revamped its energy price system because of its
deteriorating fiscal position, raising diesel prices by 63
percent. []
"The fear is setting in that inflation either destroys
consumer spending now, or induces panic tightening by central
banks, destroying growth later. Either way, equities are
supposed to lose from inflation," said asset allocation
strategists with JPMorgan, referring to emerging markets.
"Bonds react much faster to inflation and this is another
argument to be outright short in bonds, especially in emerging
markets," they said in a research note.
U.S. Treasuries prices <US10YT=RR> were largely unchanged
after jumping overnight on Bernanke's comments on inflation.
Investors of 10-year Japanese government bond futures
<2JGBv1> pushed them higher, focusing more on events this week
in the U.S. financial sector that have revived concern the
credit crisis is still not over.
"Market sentiment is skittish as investors wait for U.S.
banks' results this month." said Kim Seung-han, a market
analyst at CJ Investment & Securities. "Eyes will be on the
extent of their losses."
The price of gold <XAU=> in the spot market, which has
followed oil lower, was $876.55 an ounce, down 5 percent in the
last two weeks.
(Additional reporting by Maryelle Demongeot in SINGAPORE and
Park Jung-youn in SEOUL; Editing by Lincoln Feast and Anshuman
Daga)
