RPT-GLOBAL MARKETS-Asian stocks drop as inflation fears fly
(Repeats to wider coding with no changes to text)
HONG KONG, May 26 (Reuters) - Asian stocks fell more than 1 percent on Monday, with regional shares outside Japan hitting a 1-month low, as investors feared rising inflation and sluggish U.S. economic growth would seriously dent consumer demand.
U.S. stocks last week chalked up their biggest decline in three months as oil prices rocketed to record highs, heightening concern about company earnings for the second quarter.
By the midsession, Japan's Nikkei share average .N225 tumbled 2.2 percent, set for the largest single-day decline in six weeks, led lower by exporters such as Canon Inc (7751.T) and clothing firm Fast Retailing Co Ltd (9983.T).
South Korea's KOSPI slid 1.7 percent to the lowest since April 24. Shares of Samsung Electronics Co Ltd (005930.KS), the world's second-largest mobile phone maker, were the biggest drag on the index amid talk that Nokia (NOK1V.HE) may cut prices and re-enter the South Korean market.
The MSCI index of Asian stocks outside Japan .MIAPJ0000PUS fell 1.4 percent, on track for a fifth straight day of losses.
"The market is going to start thinking about real economies. China has held up somewhat but margins are getting squeezed by higher oil and higher materials prices," said Garry Evans, pan-Asian equity strategist with HSBC in Hong Kong.
A persistent rise in commodity prices, led by oil's 38 percent climb so far this year, has spooked investors and brought an abrupt end to a rally in global stock markets that began in mid-March when the U.S. Federal Reserve backed a deal to bail out ailing investment bank Bear Stearns & Co Inc BSC.N.
Inflation fears caused a stampede out of U.S. Treasuries last week, pushing up the yield on the benchmark 10-year note by 11 basis points. The sell-off quickly spread to Asia as well.
Japanese government bond futures on Monday edged up from nine-month lows plumbed last week, but gains were tempered by many market players, especially large banks, looking to cut their holdings.
"Market sentiment is pretty bad," said Kenro Kawano, senior interest-rate strategist at Credit Suisse in Tokyo. "At least at the moment, it's a bear market."
Kawano said the surge in oil prices and the jump in interest rates should ultimately hurt the Japanese economy. If so, that should cool some of the expectations for the Bank of Japan to lift rates in the coming year, which have weighed on the bond market.
June 10-year futures 2JGBv1 edged up 0.21 point to 134.56, up from the nine-month trough of 133.93 struck on Friday.
The benchmark 10-year yield JP10YTN=JBTC dipped half a basis point to 1.730 percent, off the nine-month peak of 1.755 percent reached on Friday.
Crude oil prices ended last week on an up note, lifted by a weak dollar and long-term supply concerns that had briefly pushed oil to a peak over $135. New York oil futures for July delivery CLN8 settled up $1.38 at $132.19 a barrel.
Gold prices have crept higher in May, reflecting investors' unease about inflation. Spot gold XAU= was up 0.3 percent at $926.70 an ounce.
The U.S. dollar was largely unchanged against the euro and yen. The euro was at $1.5776 EUR=. Against the yen, the dollar was at 103.20 yen, down 0.1 percent on the day. (Editing by Ian Geoghegan)
