Oil sinks as flight to safety hits shares

TOKYO (Reuters) - Oil prices resumed their fall on Wednesday, with Asian shares also pulling back as global growth concerns and political uncertainty in Greece prompted a flight to safety.

Investors could take no comfort from data showing China's annual consumer inflation eased to a five-year low of 1.4 percent in November, signaling persistent weakness in the world's second-largest economy.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> slipped 0.5 percent, while Japan's Nikkei stock average <.N225> was down 1.6 percent.

"Market euphoria over the recent positive news is fading out for now as investors shift to risk-averse from risk-taking," said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center.

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

Brent crude slipped 1.3 percent to $65.98 a barrel, though it remained above a five-year low of $65.29 touched on Tuesday. U.S. crude futures were down 1.4 percent at $62.96. 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.

European political woes added to the gloom. 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 (were) 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 2.220 percent in Asian trade, flat from its U.S. close on Tuesday.

The dollar was down about 0.2 percent on the day at 119.51 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 steady on the day at $1.2374 , while the dollar index <.DXY>, which tracks the U.S. unit against a basket of six currencies, was flat on the day at 88.702.

Chinese shares stabilized after a sharp selloff on Tuesday dragged down global sentiment. The Shanghai Composite Index <.SSEC> was up 0.4 percent, after a rollercoaster session on Tuesday saw it mark a 3-1/2-year high before collapsing to lose more than 5 percent.

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 <.SPX> was nearly flat.

(Additional reporting by Ayai Tomisawa in Tokyo; Editing by Shri Navaratnam and Eric Meijer)

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