Asia stocks fall on US economy fears, yen rises

SINGAPORE, June 27 (Reuters) Asian stocks fell today on growing fears that a crisis in the US subprime mortgage market could damage the world's largest economy, but the yen rose as investors' appetite for risk weakened.

Oil slipped after falling nearly 2 percent on Tuesday, joining a broad commodities sell-off. Spot gold steadied after falling to its lowest in more than three months overnight, while silver hit a five-month low and copper futures weakened.

The yen rose broadly on Wednesday on worries over the U.S.

market. A warning the day before by Japan's finance minister against one-way currency bets also curbed an appetite for carry trades.

The Nikkei average was down 0.70 percent by the mid-session with exporters such as Canon Inc. losing ground on a weaker Wall Street and the firmer yen. Canon fell 1.9 percent.

''One factor that is bringing down the index is the fall in U.S. stocks, and another is the slightly stronger yen as investors tend to lock in profits when the yen firms even a bit,'' said Hiroyuki Fukunaga, chief strategist at Rakuten Securities.

South Korean stocks were also weaker on worries about the U.S. economy. The benchmark KOSPI was down about 0.6 percent in morning trade, with Hyundai Heavy Industries down 3.4 percent and Samsung Electronics down 1.2 percent.

MSCI's measure of Asia Pacific stocks excluding Japan slipped 0.7 percent to 1-{ week lows, falling for a fourth straight session.

Volatile stock markets, in part due to concerns about the exposure of U.S. lenders to subprime mortgages in a declining housing market, have reduced investor interest in risky assets around the world.

''The issue of U.S. subprime mortgages is flaring up again.

It's not an atmosphere where people can aggressively take positions in risky assets,'' said a trader for a Japanese bank.

That included yen carry trades, in which investors borrow the low-yielding yen to buy high-yielding assets, such as the Australian dollar By 0256 GMT, the dollar was at 123.07 yen down from around 123.25 yen in late U.S. trading on Tuesday.

The euro was 165.47 yen compared to around 165.80 yen in late New York trading.

CONTAGION FEARS U.S. stocks closed lower for a third session on Tuesday, with the Dow and the Nasdaq slipping 0.1 percent. Traders said the sharp fall in oil prices eased inflation fears and helped support the market.

But worries about a wider contagion triggered by two ailing hedge funds managed by Bear Stearns Cos. Inc. worried investors.

Bear Stearns has said it would only bail out one of the hedge funds, which have invested in debt backed by subprime mortgages. This has raised concerns other investment banks, hedge funds and investors might have to take losses on their portfolios of collateralized debt obligations.

The crisis comes as the U.S. Fed reserve is meeting this week. Markets expect the Fed to keep rates unchanged, but fears of broader turmoil over troubled subprime mortgages has boosted new talk about a rate cut in the coming months.

The Fed's two-day meeting ends on Thursday.

Government data on Tuesday showed new home sales fell more than expected last month, while consumer confidence slid in June to a 10-month low.

Investors are now awaiting the U.S. Commerce Department's report on durable goods orders for May later on Wednesday.

Australian shares fell 0.7 percent as shares in the world's top miners declined after industrial metals fell in a cross-commodity sell-off.

BHP Billiton Ltd. fell 0.9 percent while main rival Rio Tinto lost 0.7 percent. Woodside Petroleum was down 1.2 percent.

Spot gold was at 1.80/642.40 an ounce, little changed from 2.00/642.60 late in New York.

Shanghai copper fell 2.5 percent on Wednesday, adding to losses in London. Copper for delivery in three months on the London Metal Exchange was 5 lower at ,255 after losing 1.6 percent on Tuesday.

''It's not just the LME, it's precious metals and energy.

It's not peculiar to industrial metals, it's a general sell-off across commodities,'' London-based ABN Amro analyst Nick Moore said on Tuesday.

London Brent crude seen as a better gauge of the global market than U.S. oil, was 8 cents weaker at .09 a barrel after dropping 1.7 percent on Tuesday.

U.S. crude was down 9 cents a barrel at .68 after dropping 2 percent the day before.

Energy analysts said they expected U.S. crude inventories, already at a nine-year high, to have risen another 1.2 million barrels last week, according to a Reuters poll.S] Reuters LPB DB1044