The Hong Kong bourse led the decliners, tumbling more than two per cent after its morning session as fears grew that already high inflation in Asia could worsen, leading to slower economic growth and falling share prices.

'If commodity prices continue to rise and oil prices stay high, it's difficult for Asian markets to make progress,' Mr Pierre Gave, the head of research at financial consultancy GaveKal, told AFP.

'The big weight on Asian markets at the moment is the problem of inflation,' Hong Kong-based Gave said. 'We've seen a big outflow of capital from Asia over the last month and a half.'

'We have commodity prices surging and stocks are taking a hit,' Mr Andy Xie, a former Morgan Stanley economist now working independently, told AFP from Tokyo. 'The equity market will at best trade sideways.'

Investors fear surging fuel and food costs will bleed cash from consumers' wallets and force some countries to hike interest rates in a bid to tame inflation by slowing economic growth.

They also worry about the impact on Asia of the ailing US economy, which is battling a slowdown after a house price downturn and default crisis among subprime - or riskier - mortgages.

Wall Street sank more than 1.7 per cent Wednesday due to the feverish rise of black gold, with the US central bank cutting its 2008 economic growth forecast to 0.3-1.2 per cent, from 1.3-2.0 per cent, citing oil prices as a factor. Crude oil continued its astonishing rise Thursday, smashing past 135 dollars in Asian trade after unexpected drops in US crude and gasoline stocks.

Meanwhile, official data on Thursday showed Japan's trade surplus tumbled more than 45 per cent in April, partly due to the rising cost of energy imports, although falling exports to the slowing US economy also took some of the blame.

The subprime crisis has inflicted huge financial losses at a slew of international banks and led to a global credit crunch, with the US expected to drag world growth lower.

Recent data showed economies in Asia, including Japan, expanded in the first three months of the year, but expectations of a global economic slowdown continue to shadow investors.

KUALA LUMPUR
The Kuala Lumpur Composite Index (KLCI) closed down 3.63 points, or 0.28 per cent, at 1277.57.

HONG KONG
Hong Kong share prices closed down 1.64 per cent Thursday as further losses on Wall Street, a weak Shanghai bourse and record oil prices prompted investors to cut positions, dealers said.

The Hang Seng index closed down 417.17 points at 25,043.12, off a low of 24,700.49 and high of 25,057.54. Turnover was 81.1 billion Hong Kong dollars (S$14.1 billion).

Property stocks slumped as comments by some local bankers sparked fears of a hike in mortgage interest rates, while airlines extended their losses on worries over the impact of high fuel prices.

China Petroleum and Chemical (Sinopec) fell more than three per cent and PetroChina lost nearly 1.6 per cent after Beijing rejected rumors that it plans to ease price controls on refined oil products.

Upstream oil firm CNOOC was also down despite crude prices breaking through US$135 a barrel. Chinese PC maker Lenovo was down over 2.8 per cent ahead of its year to March results, while conglomerate China Resources Enterprise lost 2.6 per cent after reporting a drop in first-quarter net profit.

SHANGHAI
China's key stock index dropped 1.65 per cent on Thursday with PetroChina, the most heavily weighted stock, sliding as the market discounted rumours of a possible fuel price hike while other large caps were sluggish.

The benchmark Shanghai Composite Index ended at 3,485.630, after falling as far as 3,469.792. Losing stocks in Shanghai outnumbered gainers by 598 to 287 and turnover in Shanghai A shares was active at 93.6 billion yuan (S$18.3 billion), although down from Wednesday's 96.2 billion yuan.The index had risen 2.9 per cent on Wednesday, led by a 6.6 per cent jump in PetroChina on speculation that Beijing may raise state-set fuel prices or take other steps to aid oil refiners, which have been squeezed by surging crude oil prices.

But the official Shanghai Securities News reported on Thursday that China would not deregulate fuel prices anytime soon because the government's priorities were curbing inflation and carrying out earthquake relief. PetroChina dropped 2.18 per cent to 17.47 yuan, with a further rise in crude oil prices increasing downward pressure on the shares. China's refiners have been unable to pass on higher crude oil costs due to the state controls on fuel prices.

Shares in top Asian oil refiner Sinopec, one of the most actively traded stocks, edged down 0.88 per cent to 12.44 yuan after rising their 10 per cent daily limit the previous session.

Crude oil prices soared to a fresh record above $135 per barrel on Thursday as a surprise drawdown in US crude oil inventories and a weaker dollar prompted heavy fund inflows into the market.

TOKYO
Japan's Nikkei average clawed its way up into positive territory on Thursday, rising 0.4 per cent as Chiyoda Corp gained on a brokerage upgrade while energy-related stocks came in favour after crude oil soared to a fresh record high above $135(S$183) per barrel.

The benchmark Nikkei average rose 52.16 points to 13,978.46.The broader Topix index added 0.7 per cent or 9.58 points to 1,379.67..-- REUTERS