Asia stocks down as growth fears nag

By Kevin Plumberg

HONG KONG (Reuters) - Asian stocks fell and government bonds rose on Thursday, as a sustained decline in oil prices could not shake a sense of gloom among investors about financial sector instability and the global growth outlook.

Such concerns also weighed on the dollar, which slipped back from Wednesday's seven-month peak against the yen.

Crude was trading just below $119 a barrel, having tumbled about 20 percent from July's record high, as expectations for U.S. energy demand continued to deteriorate.

Lower oil prices could be interpreted as relief for U.S. consumers, on whom Asia depends for export demand. But inflation was still a global threat, bad loans continued to dog banks and insurers and investors faced the prospect of all of the Group of Seven rich nations slipping into a recession.

As a result, optimism was in short supply.

"Certainly the environment is one that should be positive, with the weaker yen and lower oil prices," said Hideyuki Ishiguro, supervisor at the investment strategy department at Okasan Securities. "But the idea that Japan's economy isn't good is spreading.

Japan's Nikkei share average .N225 fell about 1 percent, led by a 5 percent drop in shares of clothing company Fast Retailing Co Ltd (9983.T).

Large bank stocks like Mitsubishi UFJ Financial Group (8306.T) declined after American International Group Inc (AIG.N), the world's largest insurer, posted a third straight quarterly net loss after U.S. markets closed on Wednesday.