* Metals fall sharply as U.S. dollar hits 6-month high
* Asian shares edge lower despite further slide in oil
* Japan wholesale inflation at 27-year high
By Kevin Plumberg
HONG KONG, Aug 12 (Reuters) - The U.S. dollar hit its
highest level against the euro since February on Tuesday,
rising for a sixth day as prices of oil, copper, gold and other
metals all fell further as investors anticipate lower global
demand.
Asian stocks edged lower despite oil prices retreating for
five of the last six days, as focus centred on the potential
for further economic weakness, particularly after data showed
Japan's wholesale inflation at the highest in 27 years.
In the past week, signs of economic weakness spreading in
Europe and Japan have overshadowed worries about inflation and
increased the chances for interest rates to move lower over
time to spur growth.
"What's happening to the dollar has to do with a shift in
relative growth and interest rate expectations," said Dwyfor
Evans, a strategist with State Street Global Markets in Hong
Kong.
"The currencies that have come under the most pressure
especially over the last three or four days have been those
where until recently inflation concerns dominated and now the
slowdown in the global economy has generated a shift lower in
interest rate expectations," he said.
The euro tumbled below $1.49 <EUR=> in early trade,
coinciding with a sharp drop in gold prices to around $801.90
an ounce <XAU=>, the lowest level since late December.
The dollar was up 0.2 percent against the yen at 110.25 yen
<JPY=>, approaching a seven-month high.
Weighting each currency on the basis of its U.S. trade
importance, the dollar has risen 6 percent since mid July when
oil prices peaked to a 2008 high against seven major
currencies, according to Federal Reserve data.
The combination of dollar strength, dropping crude prices
and rallying global equity markets have knocked gold down 18
percent since mid July and analysts said the precious metal
could visit the high-$700 levels before the summer is over.
[]
Japan's Nikkei share average <> fell 0.8 percent, led
by clothing company Fast Retailing <9983.T> and Tokyo Electron
Ltd <8035.T>, the world's second largest chip gear maker.
A government report showed wholesale prices rose 7.1
percent in July compared with a year ago period, the quickest
pace since January 1981, spelling trouble for corporate profits
and for Japan's economy, which many analysts believe may have
lumbered into a recession.
"The current price rises aren't driven by strong demand so
will be a drag on corporate and household activity. It's a
negative for Japan's economy," said Takeshi Minami, chief
economist with Norinchukin Research Institute.
Outside Japan, Asia-Pacific stocks fell 0.3 percent
<.MIAPJ0000PUS>, close to retesting last week's 17-month low.
Hong Kong's Hang Seng index <> was little changed, held
back by of China Mobile <0941.HK> after Citigroup and UBS cut
their price targets for the world's top mobile operator.
Oil prices slipped 0.4 percent to $114 a barrel <CLc1>
after touching a three-month low of $112.72 on Monday.
After hitting an all-time high of $147.27 a barrel in July
<CLc1>, front-month U.S. light crude has tumbled nearly 22
percent on fears about slower demand from developed economies
like Europe and emerging ones like China.
(Editing by Dhara Ranasinghe)
