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* Asian shares decline, head for 6 pct monthly fall
* Nikkei up on defensive stocks; still posts tough month
* Dollar drops against yen after recent gains
* Gold continues fall; oil also retreats
By Rafael Nam
HONG KONG, Feb 27 (Reuters) - Asian shares fell on Friday,
ending a tough month marked by nagging fears about the world
economy and the financial system, though Tokyo stocks rose and
safety plays such as the dollar pared recent gains.
Stock market gains at the start of the year unravelled
further in February and the MSCI index of Asia-Pacific shares
outside Japan headed for a 6 percent monthly fall, having hit
at one point their lowest since late November.
European shares were set to open sharply lower on Friday,
with a retreat in commodity prices such as gold and oil seen
hitting some energy-related firms and miners.
Risk aversion in February was reflected in the surge of the
dollar, which despite Friday's dip, is on track to its biggest
monthly gain against the yen since 1995. Gold had rallied, at
one point breaching past the $1,000 an ounce barrier to near a
March 2008 record before retreating some.
Grim economic data across Asia, including double-digit
export declines and shrinking economic output, are also
pummelling currencies such as the South Korean won, which on
Friday hit an 11-year low against the dollar.
"The drop in exports in the region continues to take a
terrible toll on GDP and the region's economies will continue
to decelerate for some months to come," said Calyon in a note
to clients on Friday. "The pressure on Asian currencies remains
broad based," it added.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> fell 0.9 percent by 0710 GMT, losing 13 percent
so far this year to reflect pessimism about the U.S. and world
economy.
The latest statistics deepened the gloom. Data on Thursday
showed the number of U.S. workers continuing to receive state
jobless aid jumped to record high in mid-February while durable
goods orders hit a six-year low in January. []
In Japan, production at factories plunged by a record 10
percent last month, and new jobs proved harder to find, showing
the country's worst recession since World War Two is deepening.
[]
Yet Tokyo stocks ended the month on a positive note, with
banks lifted by news that, according to a person familiar with
the talks, the U.S. government and Citigroup <C.N> reached a
deal to convert up to $25 billion in government-held preferred
shares in the bank to common equity. []
The Nikkei average <> closed up 1.5 percent to end a
month in which it flirted with 26-year lows as defensive shares
such as KDDI Corp <9433.T> climbed.
But pessimists looked at the Citi deal as yet another sign
of turmoil plaguing the financial system.
Data on Thursday showed the number of problem banks on a
U.S. watch-list jumped in the fourth quarter, while Royal Bank
of Scotland <RBS.L> reported the biggest corporate loss in
British history. [] []
"There's just one problem after another, and we'll simply
have to work through them one by one," said Katsuhiko Kodama,
senior strategist at Toyo Securities in Japan.
Among the leading decliners in the region, shares in Mumbai
<>, Singapore <.FTSTI> and Shanghai <> dropped 1-2
percent each, while Hong Kong <> fell 0.2 percent.
South Korea's stock index <> rose 0.8 percent, helped
by gains in banks and insurers.
DOLLAR PARES GAINS
The dollar dropped against the Japanese yen as investors
booked profits from a recent rally, driven by flight to safety.
Highlighting the staggering costs of containing the worst
financial crisis in decades, President Barack Obama forecast on
Thursday a $1.75 trillion deficit for the 2009 fiscal year, the
biggest U.S. budget gap since World War Two.
The yen rose 0.8 percent to 97.58 per dollar <JPY=> on
Friday after hitting a 3-
