* Yen climbs broadly after spike in volatility
* Oil briefly dips below $70, questions on demand remain
* Investors pause and see if prices reflect economic
reality
(Repeats item to more subscribers without changes in text)
By Kevin Plumberg
HONG KONG, June 16 (Reuters) - Asian stocks fell on Tuesday
in the wake of Wall Street's biggest tumble in a month, while
government bonds and the yen rose, as investors cut down on
riskier assets, demanding evidence of a sustained recovery.
Oil fell below $70 a barrel, down for a third day after
hitting a seven-month high last week, with sagging global
equities increasing investors' concerns about how quickly
commodity prices had risen at this stage of the economic cycle.
Weak U.S. manufacturing and housing gauges weighed on
sentiment, while the European Central Bank renewed fears about
banking stability after it said euro zone financial firms may
need to write down another $283 billion in bad loans over the
next 18 months.
"I don't see a lot of evidence of a really solid economic
recovery. All I see is a moderation in the rate of decay,"
Frank Villante, chief investment officer at Souls Funds
Management in Sydney.
Japan's Nikkei share average <> fell 2 percent, led by
a 3 percent decline in shares of Honda Motor Co. <7267.T>
The MSCI index of Asia Pacific stocks outside Japan
<.MIAPJ0000PUS> fell 0.7 percent, with the materials sector the
biggest drag.
Materials stocks have been driven by a rapid rise in metals
and other raw materials prices on hopes outperforming, large
economies such as China's would keep devouring commodities.
Since the latest global equity rebound began on March 9,
the MSCI all-country world index <.MIWD00000PUS> has risen 35
percent, but the materials sector <.MIWD0MT00PUS> has gained
about 49 percent.
Hong Kong's Hang Seng index <> slid 1.2 percent.
Resource-sensitive stocks were among the biggest drags on the
market, with Asia largest oil-and-gas producer PetroChina
<0857.HK> falling 2.6 percent.
The U.S. 500 stocks index <.SPX> fell 2.4 percent on
Monday, the biggest daily decline since May 13. The Dow Jones
industrial average <> and Nasdaq <> both dropped more
than 2 percent.
IS VOLATILITY BACK?
The Chicago Board Options Exchange Volatility index, better
known as the VIX <.VIX>, jumped 9.5 percent on Monday, the
largest single-day rise since April 20.
The index, which is based on prices of options on the S&P
500, is used by global investors as a benchmark for risk
taking.
The stronger indications of volatility ahead drove
investors to buy yen, which was one of the biggest movers in
Asian trade. During the most violent days of the financial
crisis, the yen consistently strengthened, thanks to Japan's
relatively unscathed banking industry.
The U.S. dollar dropped 0.9 percent to 96.96 yen <JPY=>,
while the euro fell 0.8 percent to 133.82 yen <EURJPY=>.
The euro rose 0.2 percent against the dollar to $1.3815
<EUR=> after testing a technical obstacle around $1.3750.
The outlook for the euro darkened after an ECB report on
financial stability, but equally potent were fears about how
expensive it would be for the U.S. government to finance its
growing budget deficit.
"The themes of dollar-debasement and a sick European
banking sector are powerful ones and depending on which theme
grows in intensity, the dollar could move decisively in either
direction. Right now, the mood is for downside in euro/dollar,"
Ashley Davies, currency strategist with UBS in Singapore, said
in a note.
U.S. crude futures were under pressure for a third day. The
July contract <CLc1> was down 0.4 percent at $70.30 a barrel
after earlier touching a session low of $69.90.
Investors continued to find value in late maturity U.S.
Treasuries. The benchmark 10-year yield <US10YT=RR> slipped to
3.69 percent from 3.73 percent late in New York on Monday.
The 10-year yield is on its way to a fourth consecutive
decline after reaching 4.01 percent last Thursday, its highest
since mid October.
Many debt securities, including mortgage loans, are
benchmarked against Treasury yields, so the quick rise in
yields over the last month have investors spooked about the
viability of the fragile recovery.
(Additional reporting by Denny Thomas in SYDNEY; Editing by
Neil Fullick)
