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* Oil climbs about $1 on Middle East tensions
* Asian shares fall as credit jitters hit financials
* Asian bonds gain except India and South Korea
By Rafael Nam
HONG KONG, June 23 (Reuters) - Asian equities dropped to
their lowest in three months on Monday as oil prices rose about
$1 amid escalating tensions between Israel and Iran, while
fears of more writedowns in the global financial sector also
hit stocks.
The triple threat of inflation, slowing global economic
growth and financial sector woes continued to dampen the mood.
World energy powers met for an emergency session at the weekend
in Jeddah, Saudi Arabia, but had no quick fix to crude prices
that have doubled over the past year. []
European shares were set for a mixed open, with French
<> and German stocks <> expected to track falls in
Asia, but Britain's FTSE 100 <> was seen up 5-16 points.
The prevailing uncertainty kept the dollar rangebound, but
lifted most Asian bonds, with exceptions such as in India and
South Korea. Investors were also on hold for the U.S. Federal
Reserve's policy setting meeting that begins on Tuesday and
could give further clues as to U.S. interest rates..
"It is not domestic, it's the continued pain that larger
banks are having to confront in the U.S.," said Jamie Spiteri,
senior dealer at Shaw Stockbroking.
The MSCI index of Asian stocks outside Japan
<.MIAPJ0000PUS> fell 0.7 percent to 440.0 points before
dropping to its lowest since March 25. The index has declined
for five straight weeks and is down about 17 percent this year.
U.S. crude futures <CLc1> rose 94 cents to $136.34 a barrel
by 0600 GMT, as tensions in the Middle East sparked supply
fears, erasing initial falls early on Monday on the back of
Saudi Arabia's willingness to increase output.
Iran and Israel have engaged in a sharp exchange of words
this month over suspicions Tehran is looking to develop nuclear
weapons, with crude prices jumping nearly $3 on Friday alone.
"The market took the opportunity to take profits earlier on
Saudi Arabia's promise to pump more oil, but realistically that
alone is not enough to calm the market," said Mark Pervan,
senior commodities analyst at Australia and New Zealand Bank in
Melbourne.
"The short-term situation is still very tight and tensions
between Iran and Israel are back in focus."
Gold <XAU=> rose about $4 an ounce to above $905.
FINANCIAL WOES
Monday's drop followed a weak session on Wall Street on
Friday, as expectations U.S. financial firms will need to raise
more capital triggered a guessing game about who will be next.
Banc of America added to those concerns forecasting Merrill
Lynch <MER.N> and UBS AG <UBSN.VX> will incur losses in the
second quarter on the back of more writedowns. []
Global lenders remain under pressure, with Citigroup <C.N>,
the largest U.S. bank, set to slash 6,500 jobs in its
investment bank division, the Wall Street Journal said.
[]
Tokyo's Nikkei average <> fell 0.6 percent, led down
by exporters such as Toyota Motor Corp <7203.T> and financial
firms including Mitsubishi UFJ Financial Group <8306.T>.
Japanese firms' sentiment on business conditions hit a
four-year low in April-June as commodity-driven inflation and a
dim global outlook took their toll. []
Indian shares dropped 2 percent, hitting their lowest in 10
months, amid worries of an interest rate rise to tame
13-year-high inflation, while Shanghai's main index <>
lost 1.8 percent, also on concerns about monetary tightening
following last week's fuel price hike.
South Korean shares <> fell 0.9 percent, while stocks
in Taiwan <> hit a four-month low to end down 0.3 percent.
Shares in Australia <>, Singapore <.FTSTI>, while Hong
Kong <> was flat.
SOME BONDS HIT
The dollar was little changed from late U.S. trading on
Friday at 107.35 yen <JPY=>, or well below a 4-month high of
108.59 yen hit last week.
The euro was also flat at $1.5612 <EUR=>, supported by
expectations the European Central Bank will raise interest
rates by a quarter percentage point to 4.25 percent in July.
On the other hand, U.S. interest rates are widely expected
to be kept steady at 2 percent this week, though investors will
focus primarily on the central bank's statement.
Most Asian bonds gained as investors sought safety from the
stock losses, but an exception was India, where the 10-year
federal bond yield <IN082418G=CC> rose to the highest in nearly
seven years due to the inflation concerns.
South Korean government debt tumbled on talk the Bank of
Korea was planning to raise reserve requirements to curb hefty
money supply growth, though the central bank denied this.
[]
