HONG KONG - ASIAN stocks slipped and government bond prices rose on Thursday on fears the credit crunch dogging Wall Street will inflict more damage on the region, already suffering from rising inflation.

High costs as a result of soaring oil prices and slower growth have this week dragged down the MSCI benchmark world equities index into a bear market, down 20 percent from an all-time high hit in November 2007.

In addition, a series of downward revisions to company profit forecasts and data showing Singapore's economy shrank by the most in five years have caused sentiment on Asian stock markets to deteriorate.

'Unless we see some kind of concerted move downwards in oil prices ... markets are going to remain extremely concerned that we're going to face a large threat from inflation,' said Mr Angus Gluskie, portfolio manager at White Funds Management in Sydney.

'We're going to continue to see bad debt levels escalate in the banking sector, but that's not unexpected, and loan growth rates are certainly coming down,' he added.

US light crude inched up 0.3 per cent to US$136.41 (S$185.45) a barrel and is up 42 per cent so far this year.

Japan's Nikkei share average fell 0.3 per cent to a three-month low, with weakness affecting a broad array of companies including Canon and brewer Sapporo Holdings.

Shares of companies in the Asia-Pacific region excluding Japan were down 0.5 per cent on the day and were a little more than 2 per cent away from lows reached in August 2007, when trouble in the US subprime mortgage industry turned into a global credit crisis.

Bonds strong

Economic growth remained the primary concern for bond markets.

Japanese government bonds climbed, pushing futures to two-month highs, as renewed credit jitters weighed on equity markets and boosted the safe-haven appeal of debt.

Faltering world stock markets have deepened concerns about the global and Japanese economies, and prompted Japan banks and life insurers to return to bonds after enduring a fierce market sell-off from late May to mid-June, analysts said.

'Falling US stocks to new lows imply overall asset prices there are falling as well, which in turn would deepen the economic slowdown,' said Mr Tetsuya Miura, fixed-income strategist at Shinko Securities.

'Such a view has been offsetting inflation worries and has been behind the bond bull market since late June,' he said.

September futures climbed as much as 0.65 point to 136.40, the highest since May 13, before retreating to 136.23. Many traders were forced to cover their short positions in futures when they rose above 136.00, analysts said.

The benchmark 10-year yield fell 4.5 basis points to 1.565 per cent, a two-month low.

Stocks in the US financial sector fell sharply overnight, sucking the widely-tracked S&P 500 index down 20 per cent from an record high in October 2007 and confirming what has indeed become a global bear market for equities.

Oversold?

However, some short-term gauges of momentum and sentiment suggested that markets in Asia, particularly Korea, have reached extremes.

'Looking at a lot of the momentum indicators, they are in oversold territory,' said Mr Lawrence Balanco, technical analyst with CLSA in Hong Kong. 'Sentiment has been quite negative but we might be at an extreme and seeing some consolidation and short covering with oversold indicators being as low as they are,' he said.

South Korea's benchmark Kospi was largely unchanged on the day after closing at a 14-month low on Wednesday. Strength in shares of Posco, the world's fourth-largest steel maker which is due to report results on Friday, offset a selloff in the tech sector.

Hong Kong's Hang Seng index opened 1 per cent lower.

The US dollar was steady against major currencies after falling the previous day on heightened geopolitical tensions with Iran after the fourth-biggest oil exporter conducted a long-range missile test. The euro was at US$1.5723, down 0.1 per cent. Against the yen, the dollar was at 106.80 yen, barely changed on the day.

KUALA LUMPUR

The Kuala Lumpur Composite Index (KLCI) fell 0.38 points, or 0.03 per cent, to 1,139.43, at midday.

HONG KONG

Hong Kong share prices closed flat on Thursday after a topsy-turvy session that saw the benchmark index swing in and out of positive territory, dealers said.

The Hang Seng Index closed up 15.97 points, or 0.07 per cent, at 21,821.78.

Turnover was heavy compared to recent sessions at 74.18 billion Hong Kong dollars (S$12.9 billion).

The index started the day 1.4 per cent lower on the back of Wall Street's poor performance, before rallying in the morning session to end up almost one per cent. It faded in the afternoon session.

Some property and telecoms stocks were higher, but the index was dragged down by banking giant HSBC on a weak outlook at its US operation.

SHANGHAI

Chinese stocks slipped onThursday, led by steel shares, after the main index neared chart resistance and as drops in foreign markets added to the caution.

The Shanghai Composite Index ended down 1.54 per cent at 2,875.450 points, after touching a high of 2,952.039. It had gained 9.39 percent over the previous three days.

Losing Shanghai stocks outnumbered gainers by 737 to 186, but turnover in Shanghai A shares remained active at 99.3 billion yuan (S$19.7 billion) against Wednesday's seven-week high of 105.6 billion yuan.

The market began rebounding late last week from near major chart support at the February 2007 low of 2,541, but faces major chart resistance at its April low of 2,990 points, which roughly coincides with its downtrend line from January.

Despite the market's pull-back on Thursday, hopes for a moderation of China?s economic tightening drive continued to spark interest in stocks.

The central bank suspended its regular weekly auction of three-year bills on Thursday and instead auctioned six-month bills at a yield of 3.6969 per cent, below market expectations of 3.82-3.86 per cent and Wednesday's yield of 3.8924 per cent bid for six-month bills in the secondary market .

Traders said the central bank had indicated to primary dealers a wish to keep the yield at fairly low levels, and money traders viewed both the auction result and the suspension of the three-year bill sale as signs that authorities had decided not to raise interest rates for the foreseeable future.

TOKYO

Japanese share prices closed 0.12 per cent higher Thursday despite a Wall Street tumble, but worries over US corporate earnings lingered, dealers said.

The Tokyo Stock Exchange?s benchmark Nikkei-225 index edged up 15.08 points to 13,067.21 as real estate companies and banks gained on short-covering in cautious trading.

The broader Topix index of all first-section shares rose 5.23 points or 0.41 per cent to end at 1,290.76. Thursday's trading volume was estimated at 2.0135 billion shares, up from 1.966 billion shares on Wednesday.

Analysts say the market will probably stay directionless until next week's earnings figures provide a better sense of how much trouble the US financial sector is still in. -- AFP, REUTERS