Asian stocks fall on growth fears

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Asian stocks fell and government bonds rose 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.

The US 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 per cent.

Crude oil was trading just below $119 a barrel, having tumbled nearly 20 per cent from July's record high, as expectations for US 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 US 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. "But the idea that Japan's economy isn't good is spreading."

Japan's Nikkei share average fell about 1.5 per cent, led by a 4.6 per cent drop in shares of clothing company Fast Retailing Co Ltd.

Large bank stocks like Mitsubishi UFJ Financial Group declined after American International Group Inc, the world's largest insurer, posted a third straight quarterly net loss after US markets closed on Wednesday.

Outside Japan, Asia-Pacific stocks edged down 0.5 per cent, within sight of a 16-month low plumbed on Tuesday.

Hong Kong's Hang Seng index was largely unchanged, erasing early gains, with shares of China's top offshore oil producer CNOOC Ltd the biggest weight.

Cathay Pacific Airways was the top per centage decliner on the index, down 4.8 per cent, after the airline on Wednesday posted its first interim loss in five years.

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South Korea's benchmark KOSPI dropped 1.5 per cent, weighed down by the financial sector after the Bank of Korea on Thursday raised its main interest rate by 25 basis points (bps) to its highest in 7-½ years to battle price pressures.