(Adds European outlook, updates prices)
By Louise Heavens
SINGAPORE, Dec 18 (Reuters) - Shares in Asia pared losses on
Tuesday as steadying oil prices and a firmer dollar calmed fears
that rising inflation, coupled with a slowing economy in the
United States, may lead to 1970s-style stagflation.
But while severely beaten-down sectors such as banks made a
recovery, stock investors remained extremely nervous and markets
in Tokyo, Sydney and Taiwan ended still in the red.
European markets are expected to fall at the open, with
financial bookmakers in London calling Britain's FTSE 100
<.FTSE>, Germany's Dax <.GDAXI> and France's CAC-40 <.FCHI> down
between 0.2-0.4 percent.
Investors sought the relative safety of Japanese government
bonds and Treasuries, worried that stagflation, which refers to
when prices rise and growth stagnates, would curb spending and
drag out the credit crisis.
Stagflation was last seen in the 1970s following a massive
spike in oil prices and some analysts saw its return as unlikely.
"The surge in U.S. inflation has been triggered by high oil
and commodity prices, but as oil prices are edging down this
month and the dollar is rebounding, so inflation could stabilise.
Fears of stagflation might have been exaggerated," said Kim
Joon-kie, an analyst at SK Securities.
However, news that sentiment among U.S. home builders held at
a record low for a third consecutive month in December kept
worries about the U.S. housing market slump to the fore.
[ID:nN17398742]
Investors will watch earnings from Goldman Sachs <GS.N> due
later, although expectations are high for the U.S. investment
banking giant to report another strong quarter, even as rivals
face write-downs and other problems from the subprime mortgage
crisis.
Steadier oil prices <CLc1>, which were flat at $90.78 a
barrel, helped some stock markets, notably Korea's KOSPI <.KS11>
stage a turnaround.
NIKKEI DIPS
Japanese stocks fell for the fifth session in a row. Tokyo's
Nikkei <.N225>, which shed almost 5 percent in the previous 4
trading days, pared earlier losses to end down 0.3 percent.
Banks, such as Mitsubishi UFJ Financial Group Inc <8306.T>,
recovered from persistent selling, helping steady the market.
MSCI's measure of other Asia Pacific stocks <.MIAPJ0000PUS>
climbed from an earlier three-month low but was still down 0.1
percent by 0651 GMT. The index is about 15 percent below its Nov.
1 record high, but is still up by more than a quarter as the year
draws to a close.
Hong Kong's Hang Seng <.HSI> and Singapore's Straits Times
<.STI> both nudged into the black.
Australia's <.AXJO> benchmark ended down 0.4 percent -- again
off earlier lows -- although Investment banks Macquarie Group Ltd
<MQG.AX> and Babcock & Brown Ltd <BNB.AX> fell as doubts lingered
about their ability to do deals in the current uncertain equity
and debt market conditions.
"We have probably got another two to three months of
uncertainty before credit markets in the U.S. start to
stabilise," said Jamie Spiteri, senior dealer with Shaw
Stockbroking.
Centro Properties Group <CNP.AX>, besieged by refinancing
troubles, tumbled 41 percent, adding to Monday's 76 percent
slide. [nSYD138878]
The dollar closed in on a seven-week high against the euro as
the U.S. currency drew support from the view that inflation
pressure may limit the extent to which the Federal Reserve can
lower interest rates.
The dollar <JPY=> was at 113.01 yen and at $1.4408 against
the euro <EUR=>.
In the bond market, March 10-year JGB futures were up 0.17 of
a point to 136.65 <2JGBv1>, while the benchmark 10-year JGB yield
slipped 2 basis points to 1.530 percent <JP10YTN=JBTC>.
Treasuries <US10YT=RR> were steady in Asia trade.
(Additional reporting by Kim Soyoung in Seoul; Editing by
Lincoln Feast)
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Keywords: MARKETS GLOBAL