Stocks fall, bonds, gold jump as oil hits record

SINGAPORE, July 14 (Reuters) Asian stocks dropped while bonds and gold jumped on Friday as investors flocked to low-risk, safe-haven assets after oil soared to a record high amid heightened security concerns in the Middle East.

The gyrations came as the Bank of Japan was set on Friday to raise interest rates for the first time in six years, from zero, heralding an end to ''cheap money'' that has spooked emerging markets and high-yielding currencies for months.

Japan's Nikkei stock average slumped 1.2 percent to 14,920.68 by midday, led down by shares of top microchip testing equipment maker Advantest Corp., which fell 1.9 percent.

''With oil prices surging because of these big external risks, it's going to be hard to see any gains,'' said Kim Jeong-hwan, a strategist at Woori Investment and Securities in South Korea.

Asia technology icon Samsung Electronics reported a drop in second-quarter earnings, but forecast a recovery across its mobile phone, chip and LCD flat-screen businesses in the second half.

Still, its shares dropped 2.2 percent, dragging South Korea's KOSPI down 2.5 percent.

Benchmark U.S. crude oil futures hit a record high of .40 per barrel, advancing for the fourth straight session, as Israel stepped up air attacks on Lebanon and blockaded its ports, increasing tensions in the Middle East, which supplies almost a third of the world's crude oil.

Two suspected explosions at a crude oil pipeline in Nigeria caused oil spills and raised the prospect of slowing supplies from the world's eighth-largest oil exporter.

Japanese government bonds rose as nervous investors moved money to the low-risk assets, pushing the yield on the 10-year JGB down to 1.865 percent from 1.910 on Thursday.

The yen fell to a two-week low of 115.89 yen against the dollar and edged towards its record low against the euro ahead of the Bank of Japan decision expected after 0300 GMT.

A rate rise would signal a watershed in Japanese monetary policy as the Bank of Japan embarks on a tightening cycle along with the central banks of the United States and Europe, although analysts expect further rate rises to be slow and gradual.

Soaring oil prices and the slump in stocks drove investors to traditional havens such as gold, which climbed to a seven-week high of 5.75 an ounce.

Gold has rebounded after plunging from a record high of 0 in May to a low of 3 in June.

The impasse over Iran's nuclear programme, a series of missile tests by North Korea and Israel's offensive have spooked investors already worried about rising inflationary pressures caused by soaring energy and commodity prices.

On Wall Street, the Dow Jones industrial average dropped 1.5 percent on Thursday, while the technology stocks-laden Nasdaq Composite Index fell 1.7 percent.

''Middle East violence boosted oil prices and dampened U.S.

stocks. That's no good us, as well,'' said Yusuke Sakai, manager of equities trading at Japan's Mizuho Securities.

The inflationary pressures caused by soaring energy prices have led the U.S. Federal Reserve to raise its benchmark rate 17 times over the past couple of years, dampening consumer sentiment in the world's largest economy and Asia's biggest export market.

On the Tokyo Stock Exchange, shares of top exporters slumped.

Camera and office equipment maker Canon Inc. fell 2 percent while automaker Honda Motor Co. lost 1.4 percent.

MSCI's index for the biggest Asian companies outside of Japan shed 1.9 percent.

REUTERS CS KN1142