* Mixed bag of company results leave investors uncertain
* Freddie Mac mulls selling shares to raise capital-WSJ
* Big investors like developed markets over emerging
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, July 18 (Reuters) - Asian stocks fell on Friday,
hurt by resource-related shares stung by oil's 10 percent
decline this week and by weaker-than-expected results from
Merrill Lynch, which deflated hopes for a recovery in the
financial sector.
European stock markets were predicted to open mixed,
according to financial bookmakers, with Britain's FTSE 100 seen
down as much as 0.3 percent but Germany's DAX up 0.2 percent,
as investors weighed falling oil against a mixed bag of
earnings results.
Asian shares extended losses after the Wall Street Journal
reported U.S. mortgage giant Freddie Mac <FRE.N> was
considering raising capital by selling as much as $10 billion
new shares to investors, many of whom are expected to be
existing shareholders. []
Persistent worries about the stability of the financial
sector continued to weigh on the U.S. dollar, which shed early
gains, especially after Merrill Lynch & Co <MER.N> posted a
loss that was more than twice as large as expected.
[]
Japan's Nikkei share average <> finished 0.65 percent
lower, ending its sixth consecutive losing week as concerns
grew ahead of quarterly earnings from Citigroup <C.N>, the
largest U.S. bank, due later on Friday.
The last time the Nikkei fell six weeks in a row was at the
beginning of 2008, when fears about a U.S. recession reached a
fever pitch.
Crude <CLc1> has fallen sharply this week to around $130 a
barrel on fears about sluggish U.S. demand and slowly unwinding
political tensions between the West and Iran, the fourth
largest oil exporter. It was up nearly a dollar on Friday at
$130.25.
However, investors are also sensitive to headlines about
the financial sector after a tepid reception for the U.S.
government's bail out plan for the top mortgage finance
companies, Fannie Mae <FNM.N> and Freddie Mac.
"Longer-term, people are concerned by the fact that even
though U.S. authorities have talked a lot about support for
Freddie Mac and Fannie Mae, there doesn't seem to be as much
positive impact as the market would like," said Seiichi Miura,
a strategist at Mitsubishi UFJ Securities in Tokyo.
Shares in the Asia-Pacific region outside of Japan fell 1.1
percent, according to an MSCI index <.MSCIAPJ>, and were within
striking distance of a 16-month low hit on Wednesday.
Hong Kong's Hang Seng index was down 0.1 percent<>,
weighed the most by a 4.1 percent fall in shares of CNOOC Ltd
<0883.HK>, China's third-largest oil producer.
Asia's biggest oil refiner Sinopec Corp <0386.HK> said late
on Thursday its first-half net profit was likely cut in half
compared with a year ago, having been squeezed between soaring
crude prices and China's price caps on energy products.
[]
Australia's benchmark index <> dropped 1.1 percent,
struck by declines in both energy-related shares and stocks in
the volatile financial sector. The index posted its ninth
consecutive weekly loss, the longest streak in six years.
VALUATION MATTERS
Beside Merrill Lynch, Google <GOOG.O> and Microsoft Corp
<MSFT.O> also posted lower-than-expected quarterly earnings
overnight.
But IBM <IBM.N> surprised with a much higher-than-expected
profit, Nokia <NOK1V.HE> was optimistic about its prospects,
and JPMorgan's results were helped by underwriting and bond
trading, leaving investors with a muddled view on how the
global situation of high inflation and slow growth is affecting
company profits.
Valuation is playing a major role in where big investors
are placing their money, according to State Street Global
Markets, which tracks 15 percent of the world's tradeable
assets.
The firm measures valuation by looking at the proportion of
market value not accounted for by book value.
On this basis, developed market valuations are the cheapest
in 20 years, while emerging market assets valuations have
remained relatively high because of the absence of credit
stress in developing countries.
"Developed equity markets are being seen as a safe haven.
Though inflation is high relative to recent history ... it has
yet to steamroller out of control," State Street analysts said
in a report.
The search for relative safety pushed up U.S. Treasury bond
prices in Asia, bouncing back after two straight days of losses
after disappointing earnings reports released after the closing
bell on Wall Street.
The benchmark 10-year Treasury note rose 5/32 in price to
yield 3.97 percent <US10YT=RR>, down two basis points from late
U.S. trade the previous day.
The euro was largely unchanged against the dollar at
$1.5857 <EUR=>, about two cents below an all-time high touched
on Tuesday. Against the yen, the dollar slipped 0.2 percent to
106.05 yen <JPY=>.
(Additional reporting by Elaine Lies in Tokyo)
(Editing by Kim Coghill)
