HONG KONG - OIL prices extended gains on Tuesday amid worries over supply disruptions in Nigeria and tensions in the Middle East, while Asian stocks struck new multi-month lows on concerns about a weakening US economy.

Surging energy costs in Asia are coming amid signs of slowing global economic growth, a bad omen for a region that relies on exports to help fuel profits.

United Parcel Service, the world's largest package delivery company, warned on Monday that second-quarter earnings would be below expectations due to high fuel prices and a sluggish US economy.

Trading was thin, with the dollar and regional bonds steady as investors await the outcome of a two-day meeting by the US Federal Reserve set to conclude on Wednesday, and that is widely expected to result in no change to interest rates.

'Investors are holding back ahead of the US (Federal Open Market Committee) interest rate meeting, as they are keen on hearing the Fed's comments on the economy and any hints about its future stance,' said Mr Bae Sung Young, a market analyst at Hyundai Securities.

'What the market needs (for a rebound) is some sort of positive outlook from the Fed, but we?ll see about that.'

The MSCI index of Asian stocks outside Japan edged down 0.3 per cent, but at one point hit its lowest since late March.

The index has fallen some 17 per cent so far this year, reflecting investor unease about inflation and the global economy, as well as persistent concerns about more write-downs among financial firms.

Central banks around the region, from China to Vietnam are being forced to tighten monetary policy, as they grapple with surging energy and food costs, bringing an end to several years of double-digit growth in the region's bourses.

Tokyo's Nikkei average was flat. Markets in Australia, South Korea, Hong Kong, Shanghai, Taiwan, and Singapore were down less than 1 per cent each.

Among the big movers in the region, shares in Baoshan Iron and Steel (Baosteel) fell as much as 10 per cent after it agreed on the highest price hike in at least a decade for iron ore term contracts with Rio Tinto.

But the Australia-listed shares of the mining giant Rio Tinto gained 1.4 per cent.

In South Korea, shares of Korea Exchange Bank fell 1.4 per cent ahead of a high court ruling later in the day on alleged stock manipulation by US private equity firm Lone Star, the lender's majority shareholder.

Oil gains

US crude futures prices rose for a third consecutive session, up 10 cents at US$136.84 (S$187.21)) a barrel as of 0315 GMT, after already gaining more than US$1 on Monday.

Saudi Arabia's recent pledge to increase output has been offset by a limited strike by Nigeria's senior oil workers at Chevron, raising concerns that supply from the oil producing nation could be curtailed.

On top of that, Iran and Israel have engaged in an escalating exchange of sharp words this month, adding to concerns over the supply of oil.

Rising energy prices come as the Federal Reserve is set to meet this week. The dollar steadied on Tuesday at 107.85 yen (S$1.36) holding below a four-month high of 108.59 yen hit last week, as investors waited for further clues about the direction of US interest rates. The euro was also little changed at US$1.5523

The region's government bonds were also largely flat ahead of the Fed. Japan's September 10-year futures were up 0.18 point at 134.18 by late morning.

Losers outweighed gainers, 359 to 170.

KUALA LUMPUR

The Kuala Lumpur Composite Index (KLCI) rose 7.57 points, or 0.63 per cent, at 1,202.98, at midday.

HONG KONG

Hong Kong share prices closed 1.14 per cent lower on Tuesday, led by property firms ahead of the two-day US Federal Reserve interest rate meeting, dealers said.

They said investors were concerned that the Fed could signal higher interest rates after meeting Tuesday and Wednesday, adding high crude oil prices were also weighing on investor sentiment.

The Hang Seng Index closed down 258.94 points at 22,456.02.

Turnover was 59.17 billion Hong Kong dollars (S$10.4 billion).

SHANGHAI

Chinese share prices closed 1.54 per cent higher on Tuesday as a rebound by large-cap financial and property developers boosted the market, offsetting steel makers' losses, dealers said.

Baosteel, the country's largest steelmaker, tumbled nearly eight percent after it agreed to nearly double what it pays Anglo-Australian mining group Rio Tinto for some types of iron ore.

The benchmark Shanghai Composite Index, which covers A and B shares, closed up 42.60 points at 2,803.02 on turnover of 49.9 billion yuan (S$9.8 billion).

The Shanghai A-share Index added 44.61 points, or 1.54 per cent, at 2,940.59 on turnover of 49.7 billion yuan. The Shenzhen A-share Index gained 22.76 points, or 2.79 per cent, at 838.83 on turnover of 23.7 billion yuan.

TOKYO

Japan's Nikkei stock average dipped 0.06 per cent on Tuesday, pinned between JFE Holdings and other steelmakers down on prospects of steep hikes in iron ore prices, while oil-linked shares firmed as crude oil rose for the third straight session.

Toyota Motor and other exporters slid as those same high oil prices fanned worries about the US and global economies, while renewed concerns about US financial troubles put financial shares under pressure.

The benchmark Nikkei shed 7.91 points to 13,849.56, the lowest close in nearly one month. The broader Topix was up 0.1 per cent at 1,349.19.

SINGAPORE

Singapore's STI closed lower on Tuesday with the benchmark Straits Times Index down 16.99 points or 0.57 per cent to 2,962.16. Up to 1.01 billion shares exchanged hands. -- REUTERS, AFP, ST