Asian stocks slipped and government bond prices rose on Thursday on fears the credit crunch dogging Wall Street will inflict more damage on the region, already suffering from rising inflation.

High costs as a result of soaring oil prices and slower growth have this week dragged down the MSCI benchmark world equities index into a bear market, down 20 percent from an all-time high hit in November 2007.

In addition, a series of downward revisions to company profit forecasts and data showing Singapore's economy shrank by the most in five years have caused sentiment on Asian stock markets to deteriorate.

"Unless we see some kind of concerted move downwards in oil prices ... markets are going to remain extremely concerned that we're going to face a large threat from inflation," said Angus Gluskie, portfolio manager at White Funds Management in Sydney.

"We're going to continue to see bad debt levels escalate in the banking sector, but that's not unexpected, and loan growth rates are certainly coming down," he added.

U.S. light crude inched up 0.3 per cent to $136.41 a barrel and is up 42 percent so far this year.

Japan's Nikkei share average fell 0.3 per cent to a three-month low, with weakness affecting a broad array of companies including Canon Inc and brewer Sapporo Holdings Ltd.

Shares of companies in the Asia-Pacific region excluding Japan were down 0.5 per cent on the day and were a little more than 2 per cent away from lows reached in August 2007, when trouble in the US subprime mortgage industry turned into a global credit crisis.

BONDS STRONG

Economic growth remained the primary concern for bond markets.

Japanese government bonds climbed, pushing futures to two-month highs, as renewed credit jitters weighed on equity markets and boosted the safe-haven appeal of debt.

Faltering world stock markets have deepened concerns about the global and Japanese economies, and prompted Japan banks and life insurers to return to bonds after enduring a fierce market sell-off from late May to mid-June, analysts said.

"Falling US stocks to new lows imply overall asset prices there are falling as well, which in turn would deepen the economic slowdown," said Tetsuya Miura, fixed-income strategist at Shinko Securities.

"Such a view has been offsetting inflation worries and has been behind the bond bull market since late June," he said.

September futures climbed as much as 0.65 point to 136.40, the highest since May 13, before retreating to 136.23. Many traders were forced to cover their short positions in futures when they rose above 136.00, analysts said.

The benchmark 10-year yield fell 4.5 basis points to 1.565 per cent, a two-month low.

Stocks in the US financial sector fell sharply overnight, sucking the widely-tracked S&P 500 index down 20 percent from a record high in October 2007 and confirming what has indeed become a global bear market for equities.