* Asia stocks and bonds down on lingering inflation fears
* MSCI Asia index set for biggest weekly drop in 10 months
* Shares of shippers hit on record drop in Baltic dry index
By Kevin Plumberg
HONG KONG, June 13 (Reuters) - Asian stocks and government
bonds slipped on Friday, hurt by inflation fears that put
shares in the region on track for the biggest weekly decline
since the global credit crisis erupted 10 months ago.
Concerns about a pullback in demand for commodities from
big consumers such as China knocked down shares of shipping
companies, especially after a key gauge of seaborne trade in
dry commodities <.BADI> had its biggest drop ever.
Government bonds around the world continue to be pummelled
by expectations that central banks are more concerned about the
inflationary effects of high oil prices than sluggish economic
growth. The benchmark yield on the 10-year Japanese government
bond rose to the highest since July 2007.
Oil prices <CLc1> dipped slightly to $136.66 a barrel, but
were not far from a record $139.12 a barrel last week.
The dollar slipped 0.1 percent against the yen to 107.75
yen <JPY=> but was close to a nearly four-month high of 108.08
yen. The euro was nearly unchanged against the dollar at
$1.5450 <EUR=>, ahead of a Group of Eight finance ministers
meeting which begins later on Friday in Japan.
"Overriding macroeconomic factors remain grim, with oil's
persistent strength and inflation pressure amid a global
economic slowdown," said Bae Sung-young, market analyst with
Hyundai Securities in Seoul.
Japan's Nikkei share average <> edged down 0.6 percent
and is on track for the largest weekly drop in three months.
South Korea's KOSPI <> was off 0.3 percent. POSCO Co
Ltd <005490.KS>, the world's fourth largest steelmaker, was one
of the biggest weights on the index for a second day.
The MSCI index of Asian equities <.MIAS00000PUS> was down
6.7 percent so far this week, on track for the largest decline
since the week of Aug. 19.
Freight companies such as Mitsui OSK Lines Ltd <9104.T> in
Japan and Hanjin Shipping Co <000700.KS> in Korea were under
pressure after the Baltic Exchange's dry freight index <.BADI>,
which measures the strength of seaborne trade in dry
commodities, posted its biggest single-day percentage decline
ever.
Government bonds, particularly in Japan, have been roiled
in the past week due to surprisingly blunt inflation-fighting
rhetoric from central bankers in Europe and the United States
that has been seen as opening the way for a potential Bank of
Japan rate rise later this year.
"Almost every piece of economic data -- from wholesale
prices in Japan, to producer prices in the UK and CPI in China
-- has served to reaffirm fears that inflation is out of
control," said analysts with State Street Global Markets in a
research note.
"Frankly, there is no good reason to buy government bonds
in this environment."
The benchmark 10-year JGB yield rose as much as 6 basis
points to 1.855 percent, an 11-month high <JP10YTN=JBTC>.
Two-year JGB yields, the sector most sensitive to shifts in
monetary policy, rose 2 basis points to 1.005 percent after
briefly touching a fresh 10-month high of 1.025 percent
<JP2YTN=JBTC>.
Pointed comments about the risk of higher inflation from
Fed Chairman Ben Bernanke in the last two weeks have weighed on
U.S. Treasuries. The yield on the 2-year note <US2YT=RR> rose
to 3.10 percent, the highest level since early January.
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.
(Additional reporting by Park Jung-youn in Seoul; Editing by
Michael Urquhart)
