* Stagflation fears override recovery hopes
* Crude oil surges to fresh record above $144
* Wall St joins Asia stocks in bear market
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, July 3 (Reuters) - Asian stocks fell on
Thursday, with Japanese stocks posting their longest losing
streak in a half century, on heightened fears that record high
oil and stagflation will continue to damage company earnings
and consumer spending.
Major European equity markets were expected to open between
0.6 percent to 1 percent lower ahead of a policy decision from
the European Central Bank and the June U.S. employment report.
Japan's Nikkei share index <> continued its slow bleed
for the 11th consecutive day, the longest series of declines
since 1953, after the Dow Jones industrial average <> sank
into bear market territory overnight, closing more than 20
percent below its October peak. []
The dollar was within striking distance of a two-month low
against the euro <EUR=> after a report on Wednesday showed U.S.
private employers cut the most jobs in nearly six years.
Investors will focus on whether ECB policymakers, widely
expected to deliver the first interest rate rise in a year,
will hint that borrowing costs will have to rise further to
fight inflation despite a global economy that is growing below
its long-term trend. []
Weakness was by no means unique to Japanese stocks in the
midst of a toxic mix of rising inflation and slowing growth
known as stagflation that is gripping the region.
The MSCI index of Asia-Pacific shares <.MSCIAPJ> traded
outside of Japan fell 1.4 percent to the lowest since a blowup
in the U.S. subprime mortgage sector turned into a global
credit crisis 10 months ago.
"What seems to be happening is we're seeing outflows from
emerging market equities and outflows from sovereign bonds,
which is not a surprise given the inflation backdrop," said
Dwyfor Evans, strategist with State Street Global Markets in
Hong Kong, which tracks cross-border capital flows.
"People are moving toward a more defensive, safer haven
strategy when it comes to holding equities," he said.
The euro zone, Britain, New Zealand and Japan have actually
received near record amounts of equity capital in the last
several weeks as investors repatriate their money or find
relatively stable markets amid uncertainty about the global
outlook.
WINDOW CLOSES FOR STOCKS
The benchmark MSCI pan-Asia index was down 0.6 percent
<.MIAS0000PUS>. It has fallen about 22 percent since hitting an
all-time high in November; a sustained drop of 20 percent or
more from market highs usually is defined as a bear market.
The world index <.MIWD00000PUS> is down about 19 percent
from its November 2007 high, and though still early in the
global session it is on track for the lowest close since
October 2006.
Hong Kong's Hang Seng index <> rose 0.2 percent, as
bargain hunting in China Mobile <0941.HK> and CNOOC <0883.HK>
were enough to push the index higher.
However, Ping An Insurance <2318.HK><601318.SS> was one of
the biggest drags on the market as investors dumped the stock
on rumours of a government probe into tax evasion, despite
assurances from the company.
Australia's S&P/ASX 200 index <> fell 1.9 percent to a
near two-year low, weighed down by the mining sector on
concerns that slowing global economic growth will hurt demand
for commodities and following a slump in coal prices.
BHP Billiton Ltd <BHP.AX>, the world's top miner and its
main rival and takeover target, Rio Tinto Ltd <RIO.AX>, both
lost around 6 percent.
"The window of opportunity for equities appears to have
passed, as rising inflation and inflation expectations,
aggressive central bank rhetoric and more downside to
second-half growth as the tax rebates effect fades, weighed
heavily on equity markets," said JPMorgan asset allocation
strategists in a note to clients.
They recommended reducing overall exposure to global
equities but moving to a bet that U.S. equities will outperform
credit markets.
Last month world equity markets lost $3 trillion in value,
according to Standard and Poor's, as hopes for a global
economic recovery in the latter half of the year faded on
concerns central banks will have to tighten monetary conditions
sooner rather than later because of price pressures.
Trying to trounce a potential source of inflation, China
tightened its capital controls on Wednesday in a move aimed at
deterring speculative inflows of foreign money betting the yuan
will keep strengthening. []
The euro slipped 0.1 percent to $1.5862 after earlier
rising as high as $1.5893, the highest since late April and
edging closer to an all-time peak of $1.6020 that was also hit
in April. The dollar edged up to 106.10 yen <JPY=>, rising 0.2
percent.
Markets are also awaiting U.S. non-farm payroll data later
in the day. A bigger-than-expected contraction in the labour
market, which would be the fifth straight month the world's
largest economy shed jobs, will almost certainly revive fears
of a U.S. recession.
U.S. crude prices continued their relentless rise, climbing
to a record $144.57 a barrel <CLc1> in Asian trade, up 50
percent this year as tensions grew between Israel and the
world's fourth largest oil exporter Iran and supply fears
boiled over.
Gold, often used by investors as a hedge against rising
inflation, slipped 0.2 percent to $942.20 <XAU=> an ounce after
hitting a two-month high of $944.35 on Wednesday.
