Asia shares retreat as U.S. economy fears return

SINGAPORE, May 15 (Reuters) Japanese shares fell on Tuesday after a surprise drop in machinery orders, while other Asian markets were pressured by anxieties that stocks had risen too high amid nagging worries over the U.S. economy.

The yen matched a three-month low against the dollar on the weak machinery orders, a barometer of corporate capital spending, which underscored expectations the Bank of Japan will raise interest rates only gradually.

European shares are expected to fall, with Britain's FTSE 100 index seen opening down 8 points, extending the previous day's drop, financial bookmakers said.

Copper extended its fall in Asia, with Shanghai copper down by its 4 percent daily limit, after a 3 percent decline in London.

Gold rebounded after sliding on Monday.

Japan's Nikkei average lost nearly 1 percent, with industrial robot maker Fanuc Ltd. retreating a similar amount, while the broad TOPIX index fell 1.1 percent.

Japan's core private-sector machinery orders fell 4.5 percent in March, against expectations for a 1.3 percent rise, data showed.

''Machinery data, especially a negative forecast for April-June, dampened market sentiment,'' said Yasuo Yabe, director of sales at Meiwa Securities.

''Market participants had braced for a scenario that the Japanese economy will soon come out of stagnation and regain strength. But today's data made them question it,'' he said.

The data showed manufacturers expect core machinery orders to fall 11.8 percent in April-June on the previous quarter.

''But investors can't decide the Japanese economic outlook just based on one indicator, and they will closely watch GDP data and a series of earnings results,'' said Hiroaki Kuramochi, managing director at Bear Stearns. Japan reports first-quarter gross domestic product figures later this week.

The auto sector offered some relief to the market. News that Germany's DaimlerChrysler had found a buyer for its Chrysler unit raised hopes for industry consolidation and supported shares such as Toyota Motor Co. Ltd..

South Korean auto makers such as Hyundai Motor rose 0.62 percent on the Chrysler news, even though Korean firms were unlikely to be involved in consolidation.

This was not enough to stop Seoul shares from sliding over 1 percent, the deepest in a month, as fears a record-setting rally had come too quickly led investors to take profit in outperformers such as Hyundai Heavy Industries.

WORRIES OVER ECONOMY Mining giant BHP Billiton fell 2 percent and Rio Tinto shed 1.2 percent after copper and nickel prices fell sharply on Monday, pushing Australia's key index down almost 1 percent.

Hong Kong stocks eased after climbing to a new record earlier, boosted by Beijing's decision to allow banks to invest their client's funds in overseas stocks.

MSCI's gauge of Asia Pacific stocks excluding Japan was down 0.6 percent after hitting a record high on Monday.

Singapore and Taiwan stock markets also retreated.

The broader U.S. market fell on Monday as fears about the health of the world's biggest economy resurfaced.

A survey by the Philadelphia Federal Reserve showed forecasters had cut estimates for second-quarter economic growth, while core inflation and unemployment are likely to hold steady this year.

The Standard&Poor's 500 Index fell 0.18 percent and the tech-laden Nasdaq was down 0.62 percent. But the blue-chip Dow Jones average edged up 0.15 percent, as the Chrysler news boosted automotive shares.

The dollar rose to as high as 120.54 yen in Asia -- matching a level hit last week that was the highest since Feb. 27 -- before steadying to around 120.35 yen levels seen in late U.S. trade. The euro was steady at .3542.

U.S. Treasuries steadied in Asia, ahead of U.S. consumer price inflation data due at 1230 GMT, that could offer hints on the outlook for Federal Reserve interest rate policy.

The Fed has maintained that inflation remains a greater risk than a slowdown in economic growth.

Investors believe that persistent benign inflation data could ease the Fed's inflation fears and give the central bank room to consider cutting rates to stimulate growth.

Oil extended gains seen in the past three sessions on concerns about supply disruptions. But forecasts of higher U.S. oil stockpiles are limiting gains, with London Brent up 17 cents to .00 a barrel, while U.S. crude rose 15 cents to .61.

Spot gold rose to 9.10/669.80 an ounce from 8.20/669.70 late in the U.S. market.

REUTERS PV SSC1230