* Asia stocks slip as stagflation weighs on sentiment
* Oil, soybean prices hit fresh record highs
* Nikkei tacks on 12th day of losses
(Updates with close of Japanese markets, UBS on second-quarter
results and European outlook)
By Kevin Plumberg
HONG KONG, July 4 (Reuters) - Asian stocks slipped on
Friday as record high crude oil prices threatened to jeopardise
earnings and curb consumer spending, while the uncertain
economic outlook following U.S. jobs data boosted safe-haven
government bonds.
This week has been punctuated by stagflation fears and
deteriorating sentiment after the Dow Jones industrial average
<> slipped into a bear market this week, down 20 percent
from October highs, joining Asia markets and pushing investors
into safety-first mode.
European equities are expected to open little changed,
according to financial bookmakers, with few obvious drivers to
motivate investors. UBS <UBSN.VX> said it expects to post at
worst a small loss in the second quarter, thanks largely to a 3
billion Swiss franc tax credit. []
The unfavourable combination of feeble growth and high
inflation known as stagflation has caused many analysts to cut
their expectations for regional equity performance and
investors to pull back on their willingness to take risks for
higher returns.
"Asia is suffering from its own inflationary bout. That is
the most important feature right now because it is forcing
monetary policy to be tighter at a time when headwinds from the
U.S. are increasing," said Sanjay Mathur, an economist with
Royal Bank of Scotland in Singapore.
"All this contributes to the rise in the risk premium in
Asia assets."
Japan's Nikkei share average <> fell for a 12th day in
a row, the longest string of losses in 54 years, with a broad
swathe of companies dragging the index down 0.2 percent.
U.S. markets are closed on Friday because of a public
holiday.
The pan-Asia MSCI index <.MIAS00000PUS> fell 0.2 percent,
adding to the year's 16.5 percent decline.
Asia-Pacific shares traded outside of Japan climbed 0.2
percent, according to an MSCI index <.MIAPJ0000PUS>, but had
hit a 10-month low on Thursday. The benchmark has fallen 4
percent this week and has not posted a weekly gain since May.
Hong Kong's Hang Seng <> bucked the broad declining
trend and rose 1.1 percent, with Industrial & Commercial Bank
of China <1398.HK> among the biggest boosts to the index after
China's biggest bank issued a positive earnings outlook.
[]
Australia's benchmark index <> also rose 1.5 percent.
U.S. jobs data released on Thursday showed employers cut
workers for a sixth straight month in June for the longest such
streak since 2002 and the country's vast service sector
unexpectedly contracted, underscoring the economy's frailty.
[]
BOND YIELDS
Japanese government bond yields, which move in the opposite
direction of prices, slipped after the European Central Bank
raised its benchmark interest rate as expected but gave little
indication that more increases were to come. []
The 10-year yield fell 2.5 basis points to 1.645 percent
<JP10YTN=JBTC>, having fallen about 25 basis points since mid
June when global equity markets tumbled.
Short-dated U.S. Treasury yields dropped on Thursday after
U.S. payrolls data showed the job market contracted for a sixth
month and private sector job losses amounted to 91.000 in June.
Other indications have shown that investors in Asia are
demanding a higher premium to hold assets in a growingly
risk-averse environment.
For example, the iTRAXX Asia ex-Japan high-yield index
<ITAHY5UA=ITX> had risen to a three-month high, climbing nearly
100 basis points in the last month.
Compounding inflation fears, oil prices rose to a record
high of $145.85 a barrel <CLc1>, up more than 50 percent this
year, and the price of soybeans, a key import for China, hit a
record high for the fourth time this week.
The central bank of the Philippines on Friday confirmed the
southeast Asian economy has inflation in double-digits, joining
Vietnam and India with that dubious distinction.
Stephen Jen, global head of currency strategy with Morgan
Stanley in London, said high energy prices are a "game changer"
for Asia and will have long-term consequences for the region
and particularly for China.
"While many investors and analysts are concerned about
inflation containment and the effects of monetary reactions,
higher price levels of energy, not just inflation, will hurt
Asia," he said in a note to clients.
"In other words, even if oil/energy prices stabilise now,
this will be a very significant shock to Asia, especially
China."
The euro <EUR=> edged up 0.1 percent to $1.5715 after on
Thursday rising to around $1.59, the highest since late April
and edging closer to an all-time peak of $1.6020 that was also
hit in April. The dollar was relatively unchanged at 106.85 yen
<JPY=>.
(Editing by Anshuman Daga)
