By Kevin Plumberg
HONG KONG (Reuters) - Asian stocks slipped on Friday asrecord high crude oil prices threatened to jeopardize earningsand curb consumer spending, with the uncertain economic outlookfollowing U.S. jobs data boosting safe-haven government bonds.
This week has been punctuated by stagflation fears anddeteriorating sentiment after the Dow Jones industrial averageslipped into a bear market this week, down more than 20 percentfrom October highs, joining Asia markets and pushing investorsinto safety-first mode.
The unfavourable combination of feeble growth and highinflation known as stagflation has caused many analysts toadjust downward their expectations for regional equities andinvestors to pull back on their willingness to take risks forhigher returns.
"Asia is suffering from its own inflationary bout. That isthe most important feature right now because it is forcingmonetary policy to be tighter at a time when headwinds from theU.S. are increasing," said Sanjay Mathur, an economist withRoyal Bank of Scotland in Singapore.
"All this contributes to the rise in the risk premium inAsia assets."
Japan's Nikkei share average fell for a 12th day in a row,after posting their longest string of losses in 54 years,dragged down by technology firms such as Tokyo Electron andAdvantest Corp.
The pan-Asia MSCI index fell 0.2 percent, adding to theyear's 16.5 percent decline.
Asia-Pacific shares traded outside of Japan were largelysteady, according to an MSCI index, but were hovering around a10-month low.
Hong Kong's Hang Seng bucked the broad declining trend androse 0.9 percent, with Industrial & Commercial Bank of Chinaamong the biggest boosts to the index after China's biggestbank issued a positive earnings outlook.
Australia's benchmark rose 0.8 percent.
U.S. markets will be closed on Friday because of a publicholiday.
U.S. jobs data released on Thursday showed employers cutworkers for a sixth straight month in June for the longest suchstreak since 2002 and the country's vast service sectorunexpectedly contracted, underscoring the economy's frailty.
ENERGY SHOCK
Japanese government bond yields, which move in the oppositedirection of prices, slipped after the European Central Bankraised its benchmark interest rate as expected but gave littleindication that more increases were to come.
The 10-year yield fell 3.5 basis points to 1.635 percent,having fallen about 25 basis points since mid June when globalequity markets tumbled.
Short-dated U.S. Treasury yields dropped on Thursday afterU.S. payrolls data showed the job market contracted for thesixth consecutive month and private sector job losses amountedto 91.000 in June.
Other indications have shown that investors in Asia aredemanding a higher premium to hold assets in a growinglyrisk-averse environment.
For example, the iTRAXX Asia ex-Japan high-yield index hasrisen to a three-month high, climbing nearly 100 basis pointsin the last month.
Compounding inflation fears, oil prices rose to a recordhigh of $145.85 a barrel, up more than 50 percent this year,and the price of soybeans, a key import for China, hit a recordhigh for the fourth time this week.
The central bank of the Philippines on Friday confirmedthat the south-east Asian economy has inflation indouble-digits, joining Vietnam and India.
Stephen Jen, head of currency strategy with Morgan Stanleyin London, said that high energy prices are a "game changer"for Asia and will have long-term consequences for the regionand particularly for China.
"While many investors and analysts are concerned aboutinflation containment and the effects of monetary reactions,higher price levels of energy, not just inflation, will hurtAsia," he said in a note to clients.
"In other words, even if oil/energy prices stabilize now,this will be a very significant shock to Asia, especiallyChina."
The euro edged up 0.1 percent to $1.5711 after on Thursdayrising as high as $1.5893, the highest since late April andedging closer to an all-time peak of $1.6020 that was also hitin April. The dollar slipped 01. percent to 106.65 yen.
