HONG KONG - ASIAN stocks fell for the fourth consecutive day on Wednesday as climbing oil and food prices exacerbated stagflation fears, increasing the risk investors will capitulate and knock the market even lower.

Government bond prices rose as the need for stability won over the hunger for returns.

Japanese stocks, which earlier this year were hailed as the smart trade amid rising global inflation, tumbled 1.3 per cent to an 11-week low in early trading, on track for the longest losing streak in more than 40 years.

'Though Wall Street rose yesterday, the fundamental problems with the US economy remain,' said Mr Norihiro Fujito, general manager at Mitsubishi UFJ Securities in Tokyo.

'The economies of a lot of emerging markets, which Japan counted on even if the US was doing poorly, are now being hit as well. This slowing, and inflation, may have a delayed impact on Japan, but an impact is unavoidable,' he said.

Outside of Japan, shares in the Asia-Pacific region were down 0.1 per cent, according to an MSCI index , but were approaching lows not seen since mid March.

Another wave of selling could ensue on a convincing move below those lows and a substantial rise in market volatility, as investors dump losing positions even if it means taking a big hit.

'There's quite an ominous technical pattern that we?re looking at in Asia,' said Mr Lawrence Balanco, technical analyst at CLSA in Hong Kong. 'It has been an orderly decline so far, but the capitulation risk is out there.'

Korea's KOSPI index fell 1.8 per cent, with shares of companies such as POSCO and Hyundai Heavy involved in global trade among the biggest drags.

Hong Kong's Hang Seng index fell 1.3 per cent, weighed the most by losses at HSBC Holdings, HK and China Mobile.

US Treasuries and Japanese government bonds rose as investors fled to relative safety from equity markets.

The benchmark 10-year Treasury note yield, which moves in the opposite direction of the price, ticked down to 3.99 per cent compared with 4 per cent late in New York.

The 10-year Japanese government bond yield slipped 1.5 basis points to 1.655 per cent.

High food and energy prices, the often-cited culprits of the surge in global inflation, showed no sign of letting up.

US soybean prices, a critical import for China, rose to a record high for a third day on concerns about dwindling supply. Meanwhile, corn futures bounced from a two-week low hit on Tuesday, putting upward pressure on prices of everything from ethanol to soft drinks.

US crude prices climbed US$1.21 to US$142.19 a barrel, close to the record US$143.67 a barrel hit on Monday, as tensions grew between Israel and the world's fourth largest oil exporter Iran.

Gold, often used by investors as a hedge against rising inflation, rose to the highest since mid April, at US$940.20/941.20 an ounce.

KUALA LUMPUR
The Kuala Lumpur Composite Index rose 19.87 points, or 1.69 per cent higher, to 1,154.96 at midday.

HONG KONG
Hong Kong shares opened down 1.4 per cent on Wednesday, starting the second half of 2008 on a low note, with caution over record high oil prices and resultant inflationary pressures driving investors away from the market.

Offshore oil producer CNOOC climbed 2.7 per cent to its highest level in nearly a month after crude oil prices topped $143 (S$194.7) per barrel overnight on supply concerns.

The Hang Seng Index is down 316.62 points at 21,785.39, its lowest level since March 25. The market was closed on Tuesday for a public holiday.

The China Enterprises Index of top locally-listed Chinese firms fell 1.7 per cent.

SHANGHAI
Chinese stocks were mixed on Wednesday after a positive commentary about the market by the official Xinhua news agency failed to convince investors that an eight-month-old bear run would end.

Turnover remained small and analysts said that in the absence of concrete government steps to aid the market, an extended recovery remained unlikely because of concern about tightening monetary policy and large supplies of new shares.

'The Xinhua article doesn?t sound extremely bullish about the market,' said Mr Zhang Yang, strategist at Oriental Securities.

'So the trend is still downward, and can only be reversed by strong government intervention or after stocks are excessively undervalued. 'I don?t think stocks are undervalued now, given the murky economic prospects ahead.'

The Shanghai Composite Index was up 0.13 per cent at 2,655.961 points after 20 minutes of trade, with gaining stocks only narrowly outnumbering losers by 442 to 376. On Tuesday, the index slid 3.09 per cent to a new 16-month closing low, leaving it down 57 per cent from last October's record peak.

TOKYO
Japan's Nikkei average fell 1 per cent on Wednesday, heading for its longest losing streak in more than 40 years as worries about the global economy intensified, with Canon and other exporters hurt by a stronger yen.

Shippers extended recent losses on concerns that the sector could fall further, while trading houses that had seen recent sharp gains on high oil prices slid as investors locked in profits.

The benchmark Nikkei was down 0.97 per cent at 13,331.98, heading for its 10th consecutive losing day, its longest such streak since early 1965. The broader Topix was down 1.1 per cent at 1,305.60.