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* Stocks weighed down by stagflation concerns
* Oil hits record above $143 a barrel, then dips
* Government bonds fall on economic data, outlook
By Kevin Plumberg
HONG KONG, July 1 (Reuters) - Most major Asian stock dipped
on Tuesday as oil and food prices showed no signs of defusing
stagflation fears, particularly with soybean prices at a record
and oil above $140 a barrel.
Crude climbed to an all-time high above $143 overnight but
then slipped on evidence that purse-busting prices at the pump
are having an adverse effect on fuel demand from U.S.
consumers.
The 40 percent surge in oil prices this year, even though
global economic growth has slipped below its long-term trend,
has made stagflation -- increased inflation combined with
slowing growth -- a top fear for investors and a major headache
for policymakers.
After a five-year bull market, Asian equities have fallen
sharply on concerns that the credit crisis will sap demand for
exports and inflation will erode returns. As a result,
valuations have dropped from 17.7 times expected earnings in
the next year to around 13 times, according to Standard &
Poor's.
"One positive thing, if you could call it positive, is that
shares have gotten significantly cheaper. But I am not sure if
this alone would be enough to trigger foreign buying," said Kim
Joong-hyun, a market analyst at Goodmorning Shinhan Securities
in Seoul.
Japan's Nikkei share average rose 0.6 percent, helped by a
gauge of Japanese business sentiment that was not as bad as
expected. Automakers also provided a boost to the index, which
posted its first-half decline since 1995, after a report that
Toyota Motor Corp <7203.T> plans to sell a hybrid version of
its Camry in China in 2010.
But Asia-Pacific shares traded outside of Japan <.MSCIAPJ>
dipped 0.5 percent, according to an MSCI index. The pan-Asia
index <.MIAS00000PUS> climbed 0.2 percent, helped by the
Nikkei's rise.
In the last six months, the Asia index chalked up its
biggest first-half decline in 16 years largely because of heavy
losses in China and Vietnam. For more click on [].
Taiwan's tech-heavy TAIEX index <> fell 0.4 percent,
while Korea's KOSPI <> fell 1 percent, down for a fourth
consecutive session after a Bank of Korea official said
inflation could stay above target for longer.
Hong Kong's market was closed because of a public holiday.
Some analysts believe that the next three months, smack dab
in the thick of stagflation, is a good time to sift through the
markets for good buys.
"The third quarter is going to be a time to go back and
revisit the Asian markets because, by then, we'll have seen a
real capitulation phase," said Nomura chief Asia strategist
Sean Darby at a briefing in New York.
"Equities will probably be back to some of the lows we've
seen in the last 10 years, but there won't be much financial
distress, because the balance sheets are pretty good," said
Darby, who is bullish on Korea, Malaysia, Thailand and Hong
Kong, and would look to acquire Taiwan and Australia toward the
end of the third quarter.
The bond market entered the second half on a down note
after a volatile past few months, in which the benchmark
10-year Japanese government bond yield declined around 20 basis
points in the last two weeks.
The yield <JP10YTN=JBTC>, which moves inversely to the
price, rose 6 basis points to 1.650 percent on news that the
June tankan's headline figure for big manufacturers was higher
than the median market forecast. It touched a seven-week low of
1.585 percent on Monday.
South Korean government bond yields also rose after the
country's central bank raised its inflation forecast.
The U.S. dollar rebounded slightly after slipping to a
three-week low against the euro on Monday.
The euro was down 0.1 percent at $1.5740 <EUR=> ahead of a
widely expected interest rate rise by the European Central Bank
on Thursday. The dollar was up 0.15 percent at 106.25 yen
<JPY=>.
U.S. light crude for August delivery <CLc1> was up $0.42 at
$140.41 a barrel, after posting its largest first-half increase
since 1999.
