Oil sinks again, flight to safety hits shares, dollar

TOKYO (Reuters) - Oil prices were knocked again on Wednesday, with Asian shares and the dollar also pulling back as global growth concerns and political uncertainty in Greece prompting a flight to safety.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.4 percent, while Japan's Nikkei stock average was down more than 1 percent.

A Japanese government survey released before the market opened showed big Japanese manufacturers grew less optimistic in October-December and they see conditions worsening further in the following quarter, suggesting that the economy is slow to recover from a recession.

U.S. crude futures were down more than 1 percent at $63.12 a barrel. Oil prices have been under pressure amid a massive supply glut, after OPEC decided against an output cut.

Adding to pressure on crude prices, the American Petroleum Institute, an industry group, reported a 4.4 million barrel build in crude stockpiles last week when analysts had predicted a drop. [API/S]

European political woes added to the gloomy mood. Greek shares and sovereign bond markets plunged after the government in Athens brought forward a presidential vote that heightened uncertainty over the country's transition out of its IMF/EU bailout.

World markets have been buffeted in recent months on signs of weakening global growth, with a rout in oil prices in particular triggering a bout of volatility.

"Volatility surged, most equity markets were routed and a number of consensus trades shaken in London/New York," Sean Callow, a currency strategist at Westpac, said in a note. "U.S. interest rates fell on safe-haven demand for Treasuries and the U.S. dollar followed suit."

The yield on benchmark 10-year notes stood at 2.221 percent, not far from its U.S. close of 2.220 percent on Tuesday.

The dollar was down about 0.1 percent on the day at 119.52 yen , after shedding more than 2 percent at one point on Tuesday to trade as low as 117.90 yen. The greenback marked a seven-year high of 121.86 yen on Monday.

The euro was up about 0.1 percent at $1.2381 .

A selloff in Chinese shares on Tuesday also dragged down global sentiment. China's official bond clearing house also rattled markets by tightening collateral rules. It excluded about 500 billion yuan ($81 billion) worth of corporate bonds from being used for bond repurchase agreements.

On Wall Street overnight, major indexes ended lower, though the S&P 500 was nearly flat.

(Editing by Shri Navaratnam)