Hong Kong - Asian stocks slid on Thursday, after Wall Street closed at a three-month low, sparking fears of a pullback in export demand with oil prices remaining high and feeding a rally in safe-haven government bond prices.

The US dollar was down for a fourth straight day against major currencies as expectations for higher interest rates from the Federal Reserve continue to be doused by evidence the US economy may not have hit bottom yet.

Japan's Nikkei share average tumbled 2 per cent in early trade, leading the region lower and bringing the year's losses to 7.5 per cent. Car makers such as Honda Motor and Toyota Motor, which are sensitive to fluctuations in fuel prices, 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 Mr Takahiko Murai, general manager of equities at Nozomi Securities in Tokyo.

Shanghai stocks eased 1.3 per cent in early trade and are now down 45 perc ent this year, while Vietnam?s small market fell a further 2.4 per cent to take year-to-date losses to 60 per cent.

In South Korea, consumer technology heavyweight Samsung Electronics led the KOSPI 1.4 per cent lower. Samsung's stock fell more than 3 per cent after a Taiwanese paper report that some of the company's chips had problems.

Not all negative

The picture of Asia was not altogether bleak though. JPMorgan Chase upgraded China to overweight in its model 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 Mr Adrian Mowat, Asian equity strategist with JPMorgan, in a note.

Indeed, the yuan was trading at its strongest against the dollar since being revalued in July 2005, up more than 6 per cent since the year began.

The US dollar slipped 0.15 per cent to 107.65 yen (S$1.37), while the euro rose 0.2 per cent to US$1.562.(S$2.13).

The New York Board of Trade's dollar index, a measure of the US currency's value against a basket of six major currencies, was down 0.1 per cent at 73.321 . The index hit its highest since late February on Friday but has since declined as expectations of aggressive rate hikes from the Federal Reserve fade.

'The market has been reminded about weak elements in the US economy and feels hesitant now about buying the dollar,' said a trader at a Japanese trust bank.

Worries about the US economy and lingering credit concerns also weighed on U. stocks overnight, with major indexes down 1 per cent or more.

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 US crude futures for July down 0.3 per cent to US$136.21 a barrel, though were within striking distance of the record of US$139.89 hit on Monday.

Food inflation was almost certainly headed higher, with US corn futures up for the 12th consecutive session, following the worst floods in 15 years in the American agricultural heartland.

The United States exports half of the world's corn, a third of its soybeans and almost a quarter of its wheat.

The benchmark 10-year Japanese government bond yield slid 2 basis points to 1.755 per cent.

Kuala Lumpur

The Kuala Lumpur Composite Index (KLCI) fell 20.73 points, or 1.71 per cent, at 1,191.86, at the opening.

Hong Kong

Hong Kong share prices finished the morning session lower on Thursday, down 1.9 per cent, halting a three-day advance on mounting concerns that rising fuel prices could slow economies, dealers said.

The Hang Seng index ended the morning down 432.69 points or 1.9 per cent at 22,893.11 off a high of 22,999.67 and a low of 22,833.98. Turnover was HK$30.66 billion (S$5.37 billion).

Worries over the high oil price helped pull down stocks on Wall Street overnight and raised concerns about Chinese and US corporate profits, dealers said.

Aluminum Corp of China (Chalco) slumped 5.5 per cent after Merrill Lynch cut its target price on the stock while lowering earnings forecasts.

Global fashion apparel retailer Esprit Holdings was in focus as it surged nearly four per cent after European competitor Hennes Mauritz reported better-than-expected second-quarter earnings.

Shanghai

Chinese share prices tumbled 3.37 per cent by midday Thursday as weakness in Asia and worries over inflation made investors nervous, dealers said.

The market slumped despite a sharp rebound of more than five percent in the previous session.

The benchmark Shanghai Composite Index, which covers both A and B shares, tumbled 99.22 points to end the morning at 2,841.89.

'The Shanghai index is on its way to wiping out yesterday's 5.2 per cent gains because investors are rushing to sell,' Huatai Securities analyst Mr Chen Huiqin told Dow Jones Newswires.

'Confidence in the market is still nonexistent and even institutional investors have become so short-term minded,' Chen added.

The Shanghai A-share index was down 104.16 points, or 3.38 per cent, to 2,981.28 points, while the Shenzhen A-share index fell 33.42 points, or 3.78 percent, to 849.67.

Tokyo

Japan's Nikkei share average fell 2.2 per cent on Thursday, led lower by exporters such as Honda Motor on a firmer yen and worries about a weak US economy, a major destination for world exports.

Toyota Motor slid after the automaker said it was cutting US production of its full-size pickup trucks further this year as record gasoline prices have depressed sales of gas-hungry trucks and SUVs.

The benchmark Nikkei ended down 322.65 points at 14,130.17. The broader Topix lost 2.4 per cent to 1,375.60. -- REUTERS, AFP