* Asia stocks fall 2.6 percent on worries about inflation
* Financial sector hurt by report Lehman needs more capital
* U.S. dollar rises on confidence in the Federal Reserve
(Updates prices with close of Japanese, Taiwan stock markets,
adds European outlook)
By Kevin Plumberg
HONG KONG, June 12 (Reuters) - Asian stocks tumbled to an
eleven-week low on Thursday after oil prices jumped on a report
showing tightening supply, adding to fears about rising
inflation and higher interest rates around the world.
European shares were expected to follow suit and open
slightly lower, according to financial bookmakers, potentially
extending a string of six days of declines.
Financial companies such as Sumitomo Mitsui Financial Group
<8316.T>, National Australia Bank <NAB.AX> and Cathay Financial
<2882.TW> were under fire after a report that U.S. investment
bank Lehman Brothers <LEH.N> may hunt for more capital after
already raising $6 billion, raising questions about the overall
health of the sector.
Meanwhile, oil's climb has made investors nervous about
higher borrowing costs, especially after Federal Reserve
Chairman Ben Bernanke earlier this week said the recent rise in
oil has increased the chances that inflation pressures will
grow.
"If oil prices were to stay at these high levels, that
would impact demand in emerging countries, such as India, and
hurt our exporters, while domestic demand here is almost
hopeless," said Koichi Ogawa, chief portfolio manager at Daiwa
SB Investments in Tokyo.
Japan's Nikkei share average finished down 2.1 percent at
the lowest level in two weeks. Exporters with high-profile
brands overseas, such as Canon Inc <7751.T> and Sony Corp
<6758.T>, were among the heaviest weights on the index.
The MSCI index of pan-Asian stocks <.MIAS00000PUS> dropped
2.6 percent to the lowest since April 2, while a separate index
of Asia-Pacific equities excluding Japan <.MIAPJ0000PUS> was
off 2.9 percent to the lowest since March 25.
Korea's KOSPI declined 2.4 percent <>, led by POSCO Co
Ltd <005490.KS>, the world's fourth largest steelmaker.
The Bank of Korea was the latest central bank to warn about
worsening inflation pressures, though it kept its benchmark
interest rate unchanged after a meeting.
Several central banks in the region, including those in
China, India, Indonesia and the Philippines, have already begun
to tighten monetary policy to fight upward pressure on prices,
even with the global economy slowing.
And companies and governments in Asia continue to
cautiously pass on higher costs to consumers.
China's Shandong province, a major steel-making area,
raised power tariffs for industrial users during peak hours as
it faces a possible power shortage, giving a boost to utilities
squeezed by surging coal prices. []
Higher energy and food prices have sparked double-digit
inflation rates in some Asian countries and increasingly have
pointed to a bear market for equity markets in the region.
ASIAN BEARS
From a record high on Nov. 1, the MSCI Asia ex-Japan index
is now down around 24 percent. The popular definition of a bear
market is one characterised by a prolonged period of falling
prices, usually by 20 percent or more.
In the last six months global investors have reduced their
exposure to the region, which was only a year ago hailed for
its high returns and low inflation.
Data from The Bank of New York Mellon, one of the biggest
custodians of foreign assets in the world, showed that since
January, flows of capital out of the Philippines and Hong Kong
stock markets were among the largest in the world.
U.S. light crude prices <CLc1> fell $1.06 to $135.32 after
rising around $5 overnight on a report showing U.S. stockpiles
fell for the fourth straight week. Crude hit an all-time high
above $139 hit last week.
Oil prices have risen nearly seven-fold since 2002, partly
because of rising demand from China and other rapidly
developing countries.
Representatives of the world's biggest oil consumer and
producer nations will meet in Saudi Arabia on June 22 to
discuss the oil spike, which producer group OPEC says is due to
speculation, not a lack of supply. []
The U.S. dollar rose against the euro and yen, continuing
to rally on investor confidence the Fed will be able to balance
growth with mounting inflation pressures.
The dollar has been strengthening the most against Asian
currencies as the view takes hold that central bankers in the
region are behind the curve in battling inflation.
"Pledges to tackle actual or threatened inflation with
tighter monetary policy can be a moderate currency support, but
only in so far as investors have confidence in the message from
policymakers and inflation is not undermining asset prices,"
said Patrick Bennett, Asia foreign exchange and interest rates
strategist with Societe Generale in Hong Kong said in a note.
The euro tumbled 0.5 percent to $1.5477 <EUR=> and has
remained in a range of $1.60 to $1.53 ever since mid-March.
Against the yen, the dollar rose 0.4 percent to 107.27 yen
<JPY=> and is up 12 percent in the last three months.
The dollar climbed to the highest since late February
against the yen on Wednesday, bolstered by Bernanke's comments
about containing inflation.
Bernanke warned markets the Fed will not be complacent as
declines in the dollar helped to spur crude's around 40 percent
climb so far this year.
Japanese government bond futures <2JGBv1> rebounded from
10-month lows hit on Wednesday, lifted by Treasury gains
overnight and the fall in Japan's main stock index.
(Additional reporting by Aiko Hayashi in TOKYO; Editing by
Michael Urquhart)
