* Credit fears revive
* Oil below $142 hurts energy shares
* Fund managers choose developed over emerging to start Q3
By Kevin Plumberg
HONG KONG, July 8 (Reuters) - Asian stocks fell on Tuesday,
weighed by the financial sector after sharp declines in shares
of Fannie Mae <FNM.N> and Freddie Mac <FRE.N> on funding
concerns reminded investors about the fragility of global
credit markets.
Oil rose by more than half a dollar, rebounding from the
previous day's near $4 plunge as the U.S. dollar weakened. But
the sharp decline in crude prices overnight dragged down
energy-related stocks.
A Lehman Brothers research report said a pending accounting
change could force the two largest U.S. mortgage funders --
that both have the U.S. government's implicit backing -- to
raise a combined $75 billion in capital. []
That knocked shares in the U.S. financial sector <.GSPF> to
the lowest in five years, fuelled a rally in Japanese
government bonds and dampened a willingness to take risks.
"U.S. financial shares fell on concerns about a possible
need for Fannie Mae and Freddie Mac to raise capital, and that
should weigh heavily on Japanese bank shares as well," said
Fumiyuki Nakanishi, group manager of the investment information
department at SMBC Friend Securities.
Japan's Nikkei share average <> fell 2 percent, down
for the 13th time in the last 14 days. Mitsubishi UFJ Financial
Group <8306.T>, Japan's top lender, fell 2.5 percent.
South Korea's benchmark KOSPI index <> fell 1.7
percent to the lowest since mid March, when the Federal Reserve
backed a plan for JPMorgan <JPM.N> to buy and effectively bail
out Bear Stearns <BSC_pf.N>, removing a major source of concern
for Wall Street and global markets.
Hong Kong's Hang Seng <> reversed the previous day's
gains and fell 1.3 percent, with index heavyweights HSBC
<0005.HK> and China Mobile <0941.HK> the largest drags.
Shares of companies in the Asia-Pacific region <.MSCIAPJ>
were down 0.3 percent, according to an MSCI index.
Fears that a combination of high inflation and feeble
growth known as stagflation would hit company earnings and
continue to depress consumer spending have kept European, Asian
and U.S. equity markets either in or very near to bear market
territory.
However, fund managers have been continuing to take money
out of emerging markets in Asia and place it in developed
markets on the view high inflation will choke growth, EPFR
Global said in a report.
Last week, Asia ex-Japan equity funds posted outflows for
the sixth consecutive week, while Japan equity funds took in
new money for the ninth straight week.
"Asia ex-Japan equity funds ... are being sapped by doubts
that many key markets in the region can effectively balance the
competing policy goals of a competitive currency for exporters
and a monetary policy tight enough to effectively rein in
rising inflation," said analysts with EPFR Global, a research
firm that tracks $10 trillion in assets.
Crude prices edged up 0.4 percent to $141.94 a barrel
<CLc1>, off from the record high of $145.85 hit last week but
still up 48 percent since the year began. Prices fell sharply
overnight on signals that Iran will be more flexible in
negotiations over its nuclear program, which some in the West
fear will be used to make atomic weapons.
The dollar eased 0.2 percent to 106.95 yen <JPY=>, weighed
down by renewed credit worries. The euro was little changed at
$1.5730 <EUR=>, near Monday's session high around $1.5750.
Japanese government bonds rose, recovering from a sharp
fall the previous day, on lower equity markets and renewed
worries about the health of the financial sector.
The benchmark 10-year yield <JP10YTN=JBTC> fell 4 basis
points to 1.655 percent.
