* MSCI Asia ex-Japan dips 0.7 pct, Nikkei sheds 1 pct
* Oil retreat drags down energy shares
* China bucks trend and extends rally, hits 1-yr high
* Dollar limps up after slide, China piles on pressure
By Eric Burroughs
HONG KONG, June 29 (Reuters) - Asian stock markets
retreated on Monday as weaker oil prices hit energy shares,
even with many investors sticking to the sidelines as the
second quarter winds down.
European shares were set for a stumble in early trade, with
futures on the Dow Jones Eurostoxx <STXEc1> down nearly 1
percent.
The dollar limped up from a slide late last week on worries
about the push by big emerging countries for an alternative
reserve currency. China, which holds nearly $2 trillion of
reserves believed to be concentrated in dollars, repeated its
calls for an end to the dominance of a single currency in
global finance.
Asian shares outside Japan have surged by nearly a third in
the second quarter, which would be the best quarterly gain in
16 years, as investors embraced the region on hopes it would
emerge more quickly from the deepest global recession in
decades.
World stocks have mostly shuffled sideways in the past few
weeks as investors have questioned how quickly the global
economy will return to growth, giving a boost to battered
government bonds and pushing yields lower.
Asian manufacturers had cranked up production to increase
inventories after having slashed them too sharply at the end of
last year, but doubts remain about whether consumer and
business demand will improve enough to make growth sustainable.
Japanese economic figures highlighted this trend.
Industrial output jumped a hefty 5.9 percent in May, matching
the previous month's pace and one of the fastest growth spurts
in the post-World War Two period. But forecasts showed that
factories expected the recovery to taper off in coming months.
[]
"It is a sign of the unusual nature of the current cycle
that the strongest rise in output on record can still be viewed
as a moderate disappointment," said Richard Jerram, chief Japan
economist at Macquarie Securities in Tokyo.
The MSCI index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> slipped 0.7 percent in light trade after having
posted a 2.3 percent rise last week. The drop was slightly
bigger than the 0.2 percent dip in the U.S. S&P 500 <.SPX> on
Friday.
The MSCI benchmark for Asia is up about 30 percent so far
this year, outpacing the 7.4 percent increase in world stocks
<.MIWD00000PUS> and the 1.7 percent rise in the S&P 500.
Japan's Nikkei average <> shed 1 percent. Daiwa
Securities Group <8601.T> was one of the biggest drags,
tumbling 12 percent after announcing a $2.5 billion share sale.
Analysts said the size of the capital raising caught investors
by surprise. []
A drop in oil prices pulled down energy-related shares,
with Japan's Nippon Oil <5001.T> losing 2.6 percent. Crude oil
lost 58 cents a barrel to $68.58 <CLc1> on easing tensions in
major exporter Nigeria.
But the Shanghai Composite Index <> bucked the
regional trend and climbed 1.2 percent to a one-year peak,
getting a lift from hopes that robust bank lending will keep
powering the economy through the export downturn.
Earlier a report in China's official People's Daily, the
mouthpiece of the Communist Party, said that the torrent of
bank credit is pouring too much money into infrastructure
projects and creates problems in need of attention.
[]
DOLLAR AND BONDS CLIMB
The dollar inched higher after being hit on Friday when
China's central bank renewed calls for a super-sovereign
currency to reduce the U.S. dollar's global domination, saying
it was a serious defect in the international system for one
currency to tower over all others.
On the sidelines of a meeting of central bankers over the
weekend, China and Brazil said they were discussing a currency
arrangement to allow exports and importers to settle deals in
local currencies, thereby avoiding the dollar. []
"The dollar's status as the key currency won't change right
away as moves like this need time and international support,"
said Shinichi Hayashi, a currency trader at Shinkin Central
Bank in Tokyo.
The dollar index, a gauge of its performance against six
major currencies, rose 0.4 percent to 80.215 <.DXY>, near a
two-week low struck on Friday. The euro retreated 0.5 percent
to $1.3990 <EUR=>, while the dollar was up 0.1 percent at 95.35
yen <JPY=>.
Government bonds pushed higher, helped in part by the rally
in U.S. Treasuries last week after a record $104 billion of
debt was sold without causing trouble for dealers.
Foreign central banks were believed to have been hefty
buyers at each of the three auctions via indirect bids.
The five-year Japanese government bond yield dipped 1.5
basis points to 0.705 percent <JP5YTN=JBTC>, a three-month low.
Ten-year JGB yields <JP10YTN=JBTC> dropped a basis point to
1.385 percent.
A sale of 10-year JGBs later in the week is expected to be
a key test of demand as the market has started to absorb bigger
monthly issues that are funding the Japanese government's
stimulus spending.
In Asia, Treasuries posted slight gains. The benchmark
10-year note <US10YT=RR> was up 3/32 in price to yield 3.533
percent, holding near a one-month low.
(Additional reporting by Aiko Hayashi in TOKYO; Editing by Jan
Dahinten)
