Yen, stocks fall on U.S. rate worry, N.Korea

SINGAPORE, June 19 (Reuters) The Japanese yen hit a record low against the euro and dropped versus the U.S. dollar, while Asian stocks fell on worries about rising U.S. interest rates and reports of an imminent missile test by North Korea.

The yen fell as low as 115.74 per dollar, an 8-week low, and to 145.86 per euro after U.S. officials said on Monday that North Korea had likely fuelled a long-range missile, increasing the chance of an imminent test launch.

Japan warned North Korea on Sunday of a ''harsh response'' if the reclusive communist state went ahead with the test.

Japanese and South Korean metal companies such as Mitsubishi Materials Corp. and Australian mining firms were also hit by Friday's credit-tightening in China, which analysts said could dampen demand in Asia's fastest growing economy.

''There's quite a bit of uncertainty in the market following the news of a possible missile launch by North Korea,'' said Lee Woo-hyun, an analyst at Kyobo Securities.

''China's central bank move to impose lending limits is also affecting sentiment, as it comes at a time when investors are already worried about slower global economic growth as (central banks) raise rates to fight off inflation.'' Tokyo's Nikkei's stock average fell 0.46 percent to 14,810.79 by midday and Seoul's KOSPI index was down 1.4 percent, following Friday's losses on Wall Street where the Nasdaq Composite Index lost 0.66 percent.

Australia's main stock index was off 0.7 percent.

Bond prices were little changed and looking for direction.

New York crude oil eased below a barrel after losing 2.4 percent last week as traders awaited Iran's reaction to a package of incentives from global powers aimed at ending a stand-off over its nuclear programme.

''China has put a brake on its red-hot economy and that naturally causes fears about its impact on commodities markets, namely non-ferrous metals and oil,'' said Tatsuyuki Kawasaki, director of equities trading at Kaneyama Securities.

The dollar's rise against the yen dragged spot gold lower to 5.5 an ounce from 8.0 late in New York on Friday, but well above a three-month low of 3 hit last Wednesday when it bore the brunt of a month-long sell-off on concerns about rising U.S. rates.

Those concerns were reignited after U.S. economic data on Friday showed a rise in consumer sentiment this month and a surprisingly big drop in the U.S. current account deficit.

The data added fuel to talk that the Federal Reserve was likely to raise rates for a 17th straight time, to 5.25 percent, at a meeting later this month and probably once more in August.

Federal Reserve Bank of St. Louis President William Poole said pressure from high energy prices on U.S. inflation may be greater than has appeared so far in economic data.

Fed Governor Donald Kohn said on Friday that price expectations have become ''a little bit unhinged.'' STOCKS HIT Worries that higher U.S. rates could dampen demand for Asian exports to the world's largest economy dragged shares of Toyota Motor Corp. down by 1.4 percent and Sony Corp. by 1.6 percent.

China's credit-tightening, aimed at cooling an overheated economy, hit other Asian companies who rely partly on demand from the mainland.

Komatsu Ltd. shares fell 3.3 percent. South Korea's top steelmaker POSCO dropped 2.4 percent and LG.Philips LCD Co. Ltd.

shed 4.7 percent.

But some analysts said financial markets were overreacting to the North Korean missile test.

''Once the uncertainty of geopolitical risks wanes, the market will focus on fundamentals again,'' said Tomoko Fujii, senior currency strategist at Bank of America in Tokyo.

REUTERS CH BD0934