GLOBAL MARKETS-Asia stocks fall as exporters suffer, dollar dips

                                
 (Updates with Japan stocks, European outlook)
                                
 * Three-month low on Wall Street washes over into Asia
                                
 * U.S. dollar down for fourth day, worrying exporters
                                
 * Food inflation may rise as U.S. corn prices surge
                                
 By Kevin Plumberg
                                
 HONG KONG, June 19 (Reuters) - Asian stocks dropped on
Thursday, after the Dow Jones closed at a three-month low,
sparking fears of a pullback in export demand with oil prices
remaining high and a rally in the U.S. dollar sputtering.
                                
 European stocks were expected to open slightly lower on
worsening sentiment, though commodity-related stocks could get
a boost from high raw materials prices.
                                
 Germany's DAX <.GDAXI> was predicted to open down 14 to 20
points, while Britain's FTSE 100 <.FTSE> was seen flat to down
3 points, financial bookmakers said.
                                
 The dollar dropped for a fourth straight day against major
currencies as expectations for higher interest rates from the
Federal Reserve continued to be doused by evidence the U.S.
economy may not have hit bottom yet.
                                
 Japan's Nikkei share average <.N225> finished 2.2 percent
lower, bringing the year's losses to 7.7 percent. Car makers
such as Honda Motor Co <7267.T> and Toyota Motor Corp <7203.T>,
which are sensitive to fluctuations in fuel prices and
movements in the dollar, were among the biggest weights on the
index.
                                
 "Exports support Japan's economy and there's no way Japan
won't be affected. Shanghai and Vietnamese stocks are already
eroding," said Takahiko Murai, general manager of equities at
Nozomi Securities in Tokyo.
                                
 Shares elsewhere in the Asia-Pacific region fell 1.7
percent, snapping a three-day string of gains and bringing the
year-to-date decline to 16 percent, an MSCI index
<.MIAPJ0000PUS> shows.
                                
 In China, hopes that Beijing would come to the rescue of
the ailing stock market were unanswered, leading investors to
knock down the Shanghai composite index 4.8 percent <.SSEC>
after it slid to a 15-month low the previous day.
                                
 Hong Kong's Hang Seng index <.HSI> followed suit and fell
1.85 percent, racking up losses of nearly 18 percent since the
year began.
                                
 "After the stamp duty cuts in the mainland earlier this
year, the government is not likely to take another big measure
to rescue the market. So, in the short term, we still have to
deal with the policy risk," said Mona Chung, fund manager with
Daiwa Asset Management in Hong Kong.
                                
 Vietnam's small market <.VNI> fell 2.3 percent to take
year-to-date losses to 60 percent. Thursday was the first day
of an expanded trading band, which investors viewed as a chance
to rid their portfolios of the world's worst-performing stocks.
                                
 NOT ALL NEGATIVE
                                
 The Asia picture was not altogether bleak though.
                                
 JPMorgan Chase upgraded China to overweight in its model of
Asian and emerging market portfolios based on the view that a
stronger yuan will help to contain inflation as Beijing shifts
from managing price pressures to stoking growth.
                                
 "Even without a lower oil price, China arguably has the
greatest policy flexibility to manage inflation," said Adrian
Mowat, Asian equity strategist with JPMorgan, in a note.
                                
 But underlining the task at hand for Beijing, the World
Bank said it expected China's inflation in 2008 to hit 7.0
percent, the highest level since 1996. It had projected 4.6
percent in February.
                                
 The yuan <CNY=CFXS> was trading at its strongest level
against the dollar since being revalued in July 2005, up more
than 6 percent since the year began.
                                
 The U.S. dollar slipped 0.2 percent to 107.60 yen <JPY=>,
while the euro rose 0.2 percent to $1.5565 <EUR=>.
                                
 The New York Board of Trade's dollar index, a measure of
the U.S. currency's value against a basket of six major
currencies, fell 0.1 percent to 73.30 <.DXY>.
                                
 The index hit its highest position since late February on
Friday but has since declined as expectations of aggressive
U.S. rate hikes faded.
                                
 "The market has been reminded about weak elements in the
U.S. economy and feels hesitant now about buying the dollar,"
said a trader at a Japanese trust bank.
                                
 Worries about the U.S. economy and lingering credit
concerns also weighed on U.S. stocks overnight, with major
indexes down 1 percent or more. [ID:nN18441526]
                                
 Central bankers around the world have been struggling to
balance higher inflation with the need to spur sluggish
economic growth, as housing markets continue to deteriorate,
consumers become more pessimistic and commodity prices climb
ever higher.
                                
 Oil prices were a touch lower, with U.S. crude futures for
July <CLc1> down 0.5 percent to $135.95 a barrel, though were
within striking distance of the record of $139.89 hit on
Monday.
                                
 Food inflation was almost certainly headed higher, with
U.S. corn futures up for the 12th consecutive session,
following the worst floods in 15 years in the American
agricultural heartland. [ID:nN18450627]
                                
 The United States exports half of the world's corn, a third
of its soybeans and almost a quarter of its wheat.