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* Oil rises more than $1, keeping stagflation fears high
* Asia ex-Japan stocks approach March lows, key chart
support
* Nikkei's longest losing streak in more than 40 years
By Kevin Plumberg
HONG KONG, July 2 (Reuters) - Asian stocks fell for the
fourth consecutive day on Wednesday as climbing oil and food
prices exacerbated stagflation fears, increasing the risk
investors will capitulate and knock the market even lower.
Government bond prices rose as the need for stability won
over the hunger for returns.
Japanese stocks, which earlier this year were hailed as the
smart trade amid rising global inflation, tumbled 1.3 percent
to an 11-week low in early trading, on track for the longest
losing streak in more than 40 years.
The market's focus remained on how stagflation -- the toxic
mix of rising inflation and slowing growth -- would hurt
consumer demand and corporate earnings. Modest gains on Wall
Street overnight were largely ignored.
"Though Wall Street rose yesterday, the fundamental
problems with the U.S. economy remain," said Norihiro Fujito,
general manager at Mitsubishi UFJ Securities in Tokyo.
"The economies of a lot of emerging markets, which Japan
counted on even if the U.S. was doing poorly, are now being hit
as well. This slowing, and inflation, may have a delayed impact
on Japan, but an impact is unavoidable," he said.
Outside of Japan, shares in the Asia-Pacific region were
down 0.1 percent, according to an MSCI index <.MSCIAPJ>, but
were approaching lows not seen since mid March.
Another wave of selling could ensue on a convincing move
below those lows and a substantial rise in market volatility,
as investors dump losing positions even if it means taking a
big hit.
"There's quite an ominous technical pattern that we're
looking at in Asia," said Lawrence Balanco, technical analyst
at CLSA in Hong Kong. "It has been an orderly decline so far,
but the capitulation risk is out there."
Korea's KOSPI index fell 1.8 percent, with shares of
companies such as POSCO <005490.KS> and Hyundai Heavy
<009540.KS> involved in global trade among the biggest drags.
Hong Kong's Hang Seng index <> fell 1.3 percent,
weighed the most by losses at HSBC Holdings <0005.HK><0005.HK>
and China Mobile <0941.HK>.
U.S. Treasuries and Japanese government bonds rose as
investors fled to relative safety from equity markets.
The benchmark 10-year Treasury note yield <US10YT=RR>,
which moves in the opposite direction of the price, ticked down
to 3.99 percent compared with 4 percent late in New York.
The 10-year Japanese government bond yield <JP10YTN=JBTC>
slipped 1.5 basis points to 1.655 percent.
High food and energy prices, the often-cited culprits of
the surge in global inflation, showed no sign of letting up.
U.S. soybean prices, a critical import for China, rose to a
record high for a third day on concerns about dwindling supply.
Meanwhile, corn futures bounced from a two-week low hit on
Tuesday, putting upward pressure on prices of everything from
ethanol to soft drinks.
U.S. crude prices climbed $1.21 to $142.19 a barrel <CLc1>,
close to the record $143.67 a barrel hit on Monday, as tensions
grew between Israel and the world's fourth largest oil exporter
Iran.
Gold, often used by investors as a hedge against rising
inflation, rose to the highest since mid April, at
$940.20/941.20 <XAU=> an ounce.
