(Adds European markets, quotes, updates prices)
By Louise Heavens
SINGAPORE, May 9 (Reuters) - Oil's relentless surge to a
new peak above $124 weighed on Asian shares on Friday, while
earnings worries highlighted by Toyota comments pressured
Japanese exporters, sending Tokyo's Nikkei down 2 percent.
European markets were set to open lower, with financial
bookmakers in London expecting Britain's FTSE 100 <>,
Germany's Dax <>, and France's CAC-40 <> seen down
between 0.5-0.9 percent.
The retreat in equity markets, which had rallied sharply
since mid-March, lured investors to bonds. Treasuries rose in
Asian trade and Japanese government bonds surged as investors
rushed to lock in relatively high yields.
The euro held onto its gains after bouncing back from a
two-month low against the dollar on Thursday when the head of
the European Central Bank dampened some expectations for rate
cuts by signalling that fighting inflation was his top concern.
Crude oil's record breaking run had kept stocks on the back
foot earlier this week as investors digested the prospect of
what Goldman Sachs predicted could be a new spike to $200 a
barrel.
By 0553 GMT, crude was up almost a dollar at $124.67 a
barrel <CLc1>, having earlier hit an intraday record of
$124.70.
Another inflation worry has been rising food costs. Rice
futures <RRN8> headed back towards last month's all-time high
on prospects of reduced output from cyclone-devastated Myanmar.
Despite rising oil prices, investors drew some support on
increased optimism that the U.S. economy, while softening, was
not altogether cracking under the strain of the subprime
crisis.
AUTO CONCERNS
Tokyo's Nikkei average <> ended down 2.1 percent, with
the world's biggest automaker Toyota <7203.T> falling after it
forecast its first annual profit decline in seven years.
[]
A firmer yen against the dollar this week also weighed.
"Toyota's outlook is negative news for the overall auto
industry. Investors have become wary about earnings by other
automakers," said Katsuhiko Kodama, a senior strategist at Toyo
Securities.
Shares across the rest of Asia <.MIAPJ0000PUS> fell 0.4
percent. The benchmark is down just under 8 percent so far this
year.
Seoul <> fell 1.3 percent, with refiners squeezed by
ever rising oil prices. Singapore stocks <.FTSTI> dipped 0.7
percent and Taiwan <> ended down 0.8 percent.
But Australia <> bucked the trend to rise 0.9 percent,
boosted by miners and resources companies and banks after
National Australia Bank <NAB.AX> reported upbeat earnings.
EURO GROWTH
Despite the ECB's inflation focus, traders said the euro
could come under renewed pressure against the dollar as the
market shifts focus to selling currencies with a deteriorating
growth outlook.
"Concern about slowing euro zone growth is still making the
euro vulnerable," said a trader at a Japanese bank.
The dollar was little changed at 103.37 yen <JPY=> on the
day, but was down from close to 105.58 yen on Wednesday, while
the euro was also steady at 159.78 yen <EURJPY=R>.
Japanese government bonds surged, with the benchmark
10-year yield dropping sharply from a seven-month high as
investors rushed to buy paper at higher yields after putting a
poor 10-year debt sale behind them.
"Investors are buying as they figured that bond yields had
limited scope for a further rise after seeing the market
hanging in there despite a weak auction," said Atsushi Ito, JGB
strategist at Morgan Stanley.
June 10-year futures climbed 0.80 points to 136.60. The
benchmark 10-year yield fell 8.5 basis points to 1.555 percent
<JP10YTN=JBTC>, well off a seven-month high of 1.680 percent
struck this week.
In the precious metals' market, gold held near a one-week
high, supported by the euro's rise from Thursday. Spot gold
<XAU=> was up at $884.15/885.10 an ounce, not far from
Thursday's 1-week high of $885.25.
Platinum <XPT=> jumped to $2,028/$2,048 an ounce.
