Asian Markets Sink on Inflation Fears

Asian stocks sank deep into the red Thursday, with markets battered down by 2 percent on average. Japan, Australia and South Korea all closed sharply lower.

U.S. crude oil jumped about $5 a barrel, settling at $136.38 a barrel late New York Wednesday after a report that showed crude inventories declined by 4.6 million barrels last week, more than four times what analysts had expected. Oil has since eased slightly, trading below $136 during the Asian session.

Tokyo's Nikkei 225 Average tumbled 2 percent to hit a two-week closing low, as exporters such as Canon fell on concerns that rising inflation will slow the global economy. Banks also slid after their U.S. peers fell on fresh signs of  trouble in the financial sector, while both property developers and shippers extended recent losses.

Seoul shares closed sharply lower after the central bank warned of accelerating inflation following a rate freeze decision, dampening sentiment throughout a rocky afternoon session. The KOSPI shed 2.3 percent to hit a two-month low. The head of the Bank of Korea said its views on the inflation threat were not meant to indicate higher chances of an imminent interest rate increase, but his comments did not stop investors from dumping shares, selling steelmakers and technology issues such as POSCO and Hynix Semiconductor more heavily.

Australian shares fell 2.5 percent to a two-month low, with financial firms such as National Australia Bank leading declines on concerns about more credit-related losses and as inflation worries grew. Investment firm Babcock & Brown plunged 25 percent to a three-and-half-year closing low amid concerns that a fall in its market value could trigger a review of its debt covenants.

Hong Kong shares fell 1.3 percent, sliding for the fourth straight day, led by Chinese stocks on fears of rising inflation and continued credit tightening on the mainland. But shares in major power producers such as Huadian Power bucked the broad market trend after China's Shandong province raised the peak power tariff for industrial users. Chalco shares weighed on the market, down 5.9 percent at one point, amid worries of weaker earnings after analysts said production costs for alumina had surged 24 percent between January and April.

Singapore's Straits Times Index shed 0.9 percent, led by losses in banks, such as DBS Group, and the Singapore Exchange, on worries about fresh credit-related losses in the financial sector.

China's Shanghai Composite Index fell 2.2 percent, to a new 14-month low, dragged down by high inflation and tightening monetary policy, large supplies of fresh equity, and weak global markets.

© 2008 CNBC.com