GLOBAL MARKETS-Asian stocks drop as oil slide raises fears

                                
 * Oil prices fall more than $1, extend Monday's slump
                                
 * Resource shares hit, Asia stocks at lowest since March
2007
                                
 * Dollar hits 7-week high ahead of Fed policy meeting
 (Updates with latest Asian prices, European outlook)
                                
 By Rafael Nam
                                
 HONG KONG, Aug 5 (Reuters) - Asian stocks fell to their
lowest level in more than a year on Tuesday as shares in
resource firms such as BHP Billiton were pummeled by a slump in
oil and metals prices to multi-month lows.
                                
 Oil hovered just above a three-month low on signs of
declining U.S. fuel demand, helping to lift the dollar to a
seven-week high against a basket of major currencies.
                                
 But the steep decline in crude prices to $120 from a record
high above $147 in mid-July is worrying some investors in Asia
who had at first cheered the benefits in a region where
countries are grappling with double-digit inflation.
                                
 Instead, the commodity declines are now reinforcing fears
of a slowing global economy, one year after a downturn in the
U.S. subprime mortgage market helped spark a financial crisis
still reverberating around the world.
                                
 European shares were set for a mixed open, as the focus
shifted towards a Federal Reserve meeting later on Tuesday. The
U.S. central bank is expected to leave U.S. interest rates
unchanged, partly due to easing energy prices. [ID:nN03323846]
                                
 "At the moment, people are taking the view that the glass
is half-empty, rather than half-full," said Greg Goodsell,
equity strategist at ABN AMRO in Sydney.
                                
 "Rather than looking at the positive side, that weaker
commodities take the pressure off inflation, people are seeing
it as a product of slower growth."
                                
 The declines in resource firms, combined with the concerns
over the global economy, brought the MSCI index of Asian stocks
outside Japan <.MIAPJ0000PUS> at one point to its lowest level
since March 2007, before it pared some of the losses.
                                
 The index was down 1.8 percent as of 0600 GMT.
                                
 U.S. crude futures <CLc1> were down $1.23 at $120.18 at
0600 GMT. A Reuters survey on Monday showed OPEC oil supply
rose for a third consecutive month in July due to higher output
from the world's top exporter Saudi Arabia and smaller
increases from other members. [ID:nL4265128]
                                
 The falls in crude prices came even as Tropical Storm
Edouard churns across the Gulf of Mexico, with forecasters
expecting it will likely hit the Texas coast, a major U.S. oil
and gas centre, with near-hurricane strength. [ID:nN04479259]
                                
 But energy companies have so far reported few production
slowdowns, easing some of the concerns.
                                
 Metal prices also slumped. Spot platinum <XPT=> dropped to
as low as $1,530.00 an ounce, its weakest in more than six
months, from $1,551/$1,571 late in New York on Monday, on fears
of falling demand from struggling global auto makers.
                                
 Gold <XAU=> edged down about $4 to $890.95/892.00 an ounce.
                                
 COMMODITY SHARES SLUMP
                                
 The falling prices of oil and metals dented commodity
shares in Asia, with Australian resource firm BHP Billiton Ltd
<BHP.AX> losing 6 percent and Hong Kong-listed oil offshore
producer CNOOC <0883.HK> down 5.4 percent.
                                
 "Global slowdown worries have prompted an unwinding in the
commodities market, which in turn has spurred a sell-off in
commodity-linked stocks," said Steven Leung, director with UOB
Kay Hain in Hong Kong.
                                
 "If the U.S. dollar continues to advance we will see
commodity stocks taking further hits in the short term."
                                
 The resource-heavy Australian index <.AXJO> fell 1.4
percent, while the Hong Kong <.HSI> and Taiwan <.TWII> indexes
dropped more than 2 percent each.
                                
 Tokyo's Nikkei average <.N225> swung between gains and
losses, to end down 0.1 percent. Falls in commodity-related
shares were offset by gains in exporters such as Honda Motor
<7267.T> which benefit from a weaker Japanese yen.
                                
 The dollar benefitted as investors sold other major
currencies against the U.S. unit given expectations that other
economies are also slowing.
                                
 The dollar index, which measures the U.S. currency's
performance against a basket of six currencies, rose 0.3
percent to 73.685 <.DXY> and reached as high as 73.699, the
highest since mid-June.
                                
 The Australian dollar extended its slide, striking a
four-month low of $0.9234 against the U.S. currency, after the
central bank on Tuesday left the door open for the first cut in
interest rates in seven years, that some investors believe
could come as soon as September. [ID:nSYD197756]