Asian shares on Monday slipped back toward a three-month low hit last week, with emerging Asian equities seen likely to keep lagging developed markets as investors fret about risks from inflation.

London crude prices rose by more than $2 to $114.37 a barrel and MSCI's index of Asia-Pacific shares fell 0.3 percent to 460.31 <.MIAPJ0000PUS>, as the worsening situation in Libya stirred renewed worry about disruptions to oil production.

The recent unrest in the Middle East, which pushed London crude prices to their highest level since August 2008 of $119.79 last week, has exacerbated worries about inflationary pressures in emerging Asian economies.

Market players said emerging Asian stock markets may continue to underperform compared to developed markets such as Japan and the United States.

There are strong concerns about inflation based on excessive liquidity and emerging markets have been hurt more by this, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Tokyo.

Developed countries...are not raising interest rates while emerging markets are in the midst of doing so. That is negative for (emerging market) equities and that trend will probably still continue, Akino added.

Underscoring the recent trend, MSCI's index of Japanese shares has risen 4.3 percent <.MIJP00000PJP> so far in 2011 while its Indonesian index has shed 7.7 perce<.MIID00000PID>.

MSCI's index of Asia-Pacific shares outside fell to as low as 454.70 last Thursday, its lowest level since December 1.

Part of that divergence likely reflects position unwinding, said Adrian Foster, head of financial markets research with Rabobank International in Hong Kong.

Late last year, massive liquidity driven rallies in global equity markets helped give a boost to emerging market shares, Foster said.

That largely explains why (emerging) equity markets this year have been quite weak. Just the unwinding of these... particularly in India and also in Indonesia, Foster added.

A growing aversion to risky assets in the week to February 23 fueled the biggest flows to global bond funds in more than three months, and turned more investors away from emerging market stocks, according to fund tracker EPFR Global.

With more than $20 billion leaving emerging market stock funds since mid-January, it is the longest period of outflows since the financial crisis deepened in September 2008.


The dollar found a steadier footing, having rebounded after hitting a record low against the Swiss franc on Friday, but the mood remained cautious given tensions in Libya and fears of contagion.

The dollar last stood at 0.9270 francs, down 0.2 percent on the day but above a record low of 0.9229 hit against the safe haven Swiss currency on trading platform EBS on Friday.

The euro dipped 0.1 percent against the dollar to $1.3744, but the single currency was seen staying in favor ahead of a European Central Bank meeting this week.

With rising commodity prices, the ECB will likely continue its tough talk on inflation, increasing the probability of early ECB tightening, BNP Paribas analysts wrote in a note.

Traders said the euro ran into some profit-taking as did the Australian dollar, which fell 0.3 percent to $1.0143.

Elsewhere, benchmark 10-year U.S. Treasuries rose 6/32 in price to yield 3.394 percent, while gold edged up 0.3 percent to $1,413.10. Gold, a traditional safe haven, was on course for a 6.2 percent monthly gain, its biggest since November 2009.

(Additional reporting by Osamu Tsukimori in Tokyo and Ian Chua in Sydney; Editing by Richard Borsuk)