Asian stocks dropped today, snapping a six-day rise, weighed down by retailers and property companies as the relentless climb in oil prices fuelled inflation fears.
US oil was trading above $127 a barrel today after a record close yesterday, supported after Opec president Chakib Khelil said the cartel would not increase output at its next meeting in September.
Oil has risen around 33 per cent since the year began. Higher energy costs have spread fear among investors that consumers and businesses around the world would reel in their spending at a time when the global economy is slowing.
Shares in Europe were also expected to head lower, with financial bookmakers forecasting the main index in London would open down 22-28 points, Germany down 21-28 points and French shares down 6-25 points.
Safe-haven US Treasuries climbed and the Swiss franc, which often benefits in times of market volatility, strengthened.
Hong Kong's Hang Seng index was down 1.9 per cent, or 498.7 points, at 25247.28, and stocks in the territory were among the region's biggest decliners.
China Mobile, the world's largest mobile cellular carrier by users, was down 2.15 per cent after it said subscriber growth had slowed in April.
Australia's benchmark S&P/ASX 200 index was off 45.3 points, or 0.8 per cent, at 5,904.1. Macquarie Group, Australia's biggest investment bank, was one of the biggest drags on the index after it said it faced a challenging year.
China's benchmark Shanghai Composite Index edged up 24.75 points, or 0.7 per cent, to 3,629.55.
By 0412 GMT, Japan's Nikkei average was down 0.8 per cent, or 129.84 points, at 14,139.77, after finishing on yesterday at its highest level since early January.
"We're seeing a lot of the same trends as yesterday - trading houses and steel firms are up on strong commodity prices, while retailers are down since their general outlook is not so good due to concerns about consumption, with oil prices so high," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.
Stocks around the world rose to a four-month peak yesterday on optimism the worst of the credit crisis had passed and an economic recovery was under way.
However, technology shares dropped in late trade after grim comments from a chip maker, spreading unease about the outlook for business and consumer spending.
Today's turnaround lifted government bond prices.
In Japan, June 10-year government bond futures rose 0.37 points to 135.49, pulling away from a seven-month low of 134.28 struck last week.
Benchmark 10-year US Treasury notes climbed 2/32 in price to yield 3.824 per cent, dipping 1 basis point from late US trade. The 10-year yield rose briefly above 3.98 per cent last week, the highest in the year to date.
The US dollar slipped against the euro and yen after rebounding overnight when April US leading economic indicators suggested the world's largest economy was turning the corner.
The euro was up 0.1 per cent at $1.5531, while the dollar was down 0.15 per cent at 104.14 yen.