* AIG results weigh on financial sector
* Oil below $119, down around $30 from record high
* G7 recession becomes real possibility
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Aug 7 (Reuters) - Asian stocks fell on Thursday,
as a sustained decline in oil prices could not shake a sense of
gloom among investors about financial sector instability and
the worsening global growth outlook.
European stock markets were expected to open as much as 0.5
percent lower, according to futures markets, after European
insurer Allianz <ALVG.DE> warned about its profit forecast for
2009 and the world's largest insurer American International
Group Inc <AIG.N> chalked up a quarterly net loss of $5
billion.
Dealers expected Barclays Plc <BARC.L> to fall as much as 3
percent at the open after the bank said first-half profits fell
33 percent on $4 billion of write downs, though that was not as
bad as expected.
The U.S. dollar slipped against the yen after jumping to a
seven-month high on Wednesday. It was also slightly weaker
against the euro ahead of a European Central Bank policy
decision due later, widely expected to keep interest rates on
hold at 4.25 percent.
Crude oil was trading just below $119 a barrel <CLc1>,
having tumbled nearly 20 percent from July's record high, as
expectations for U.S. energy demand continue to deteriorate.
Concerns about wavering demand in China, whose economy has
devoured natural resources for the last decade and pushed up
commodity prices, also weighed on copper prices.
Lower oil prices could be interpreted as relief for U.S.
consumers, on whom Asia depends for export demand. But
inflation was still a global threat, bad loans continued to dog
banks and insurers, and investors faced the prospect that all
of the Group of Seven rich nations could slip into recession.
As a result, optimism was in short supply.
"Certainly the environment is one that should be positive,
with the weaker yen and lower oil prices," said Hideyuki
Ishiguro, supervisor at the investment strategy department at
Okasan Securities in Tokyo. "But the idea that Japan's economy
isn't good is spreading."
Japan's Nikkei share average <> fell about 1 percent,
led by an 11 percent drop in shares of air-conditioner maker
Daikin Industries Ltd <6367.T> after the company cut its
earnings outlook because of sluggish sales in Europe.
Shortly after the market closed in Japan, Toyota Motor Corp
<7203.T>, the world's biggest car maker, said quarterly net
profit fell 28 percent but it kept its forecasts unchanged.
Outside Japan, Asia-Pacific stocks <.MIAPJ0000PUS> were
largely unchanged, but within sight of a 16-month low plumbed
on Tuesday.
Hong Kong's Hang Seng index <> rose 0.6 percent, lifted
by a 1.7 percent rise in shares of HSBC Holdings <0005.HK>.
Cathay Pacific Airways <0293.HK> was the top percentage
decliner on the index, down 4.6 percent, after the airline on
Wednesday posted its first interim loss in five years.
CENTRAL BANK DILEMMA
South Korea's benchmark KOSPI <> dropped 0.9 percent,
weighed down by the financial sector after the Bank of Korea on
Thursday raised its main interest rate by a quarter percentage
point to its highest in 7-
