* Gold falls to 2008 low on dollar strength
* Asian shares edge up, with eyes on oil
* China consumer inflation at 10-month low
(Updates prices, adds background)
By Kevin Plumberg
HONG KONG, Aug 12 (Reuters) - The U.S. dollar climbed to
its highest level against the euro since February on Tuesday,
rising for a sixth day as worries about a sharp global slowdown
hit higher yielding currencies and commodities such as oil and
gold.
Asian stocks inched higher with crude prices retreating for
five of the last six days, boosting shares of auto makers and
exporters, though the potential for further economic weakness
curbed gains, particularly after data showed Japan's wholesale
inflation at the highest in 27 years.
In the past week, signs of a slowdown spreading in Europe
and Japan have overshadowed worries about inflation and
increased the chances for interest rates to move lower over
time to spur growth.
"What's happening to the dollar has to do with a shift in
relative growth and interest rate expectations," said Dwyfor
Evans, a strategist with State Street Global Markets in Hong
Kong.
"The currencies that have come under the most pressure
especially over the last three or four days have been those
where until recently inflation concerns dominated and now the
slowdown in the global economy has generated a shift lower in
interest rate expectations," he said.
The euro tumbled below $1.49 <EUR=> in early trade,
coinciding with a sharp drop in gold prices to around $801.90
an ounce <XAU=>, the lowest level since late December.
The dollar was up 0.2 percent against the yen at 110.25 yen
<JPY=>, approaching a seven-month high.
Weighting each currency on the basis of its U.S. trade
importance, the dollar has risen 6 percent since mid July when
oil prices peaked to a 2008 high against seven major
currencies, according to Federal Reserve data.
The combination of dollar strength, dropping crude prices
and rallying global equity markets have knocked gold down 18
percent since mid July and analysts said the precious metal
could visit the high-$700 levels before the summer is over.
[]
Commodities prices have been broadly falling as a wide
range of investors remove hedges against higher global
inflation as growth winds down. The Reuters-Jefferies CRB index
<.CRB>, a basket of 19 commodity futures, dropped to a
four-month low.
INFLATION STILL A PROBLEM?
Japan's Nikkei share average <> slipped 0.3 percent,
led by clothing company Fast Retailing <9983.T> and Tokyo
Electron Ltd <8035.T>, the world's second largest chip gear
maker.
A government report showed Japanese wholesale prices rose
7.1 percent in July compared with a year ago period, the
quickest pace since January 1981, spelling trouble for
corporate profits and for Japan's economy, which many analysts
believe may have sunk into a recession.
"The current price rises aren't driven by strong demand so
will be a drag on corporate and household activity. It's a
negative for Japan's economy," said Takeshi Minami, chief
economist with Norinchukin Research Institute.
Outside Japan, Asia-Pacific stocks rose 0.15 percent
<.MIAPJ0000PUS>, but remained close to last week's 17-month
low.
Hong Kong's Hang Seng index <> rose 1.7 percent, helped
by shares of power companies that stand to benefit from lower
raw materials prices.
China Mobile <0941.HK> was one of only two stocks in the
red, falling 1.9 percent after Citigroup and UBS cut their
price targets for the world's top mobile operator.
Consumer inflation in China fell to the lowest in 10
months, a government report showed, down in July for the third
consecutive month, possibly paving the way for more pro-growth
policies out of Beijing.
"Falling inflation suggests that the government's
macro-tightening measures have been effective, which will both
reduce investor fears of the possibility of policy missteps,
and increase the chances of a shift to targeted pro-growth
policies in the second half of the year," Jing Ulrich, chairman
of China equities with JPMorgan, said in a note.
The data, however, was not enough to spark a big rally in
Shanghai, where the composite index edged up 0.2 percent
<>.
Oil prices slipped 0.5 percent to $113.90 a barrel <CLc1>
after touching a three-month low of $112.72 on Monday.
After hitting an all-time high of $147.27 a barrel in July
<CLc1>, front-month U.S. light crude has tumbled nearly 22
percent on fears about slower demand from developed economies
like Europe and emerging ones like China.
(Editing by Lincoln Feast)
