June 2 (Bloomberg) -- Asian stocks fell after crude-oil futures surged to a record, renewing concern that higher fuel prices may increase corporate costs and slow economic growth. Japan Airlines System Corp. and Korean Air Co. led declines.

``Some investors are in for a shock,'' said Jim Reid, who helps manage $324 million at Trust Co. of Australia Ltd. in Sydney. ``The market has been pricing in a lower oil price for a couple of years.''

Morgan Stanley Capital International's Asia-Pacific Index, which tracks more than 900 stocks in the region, shed 1.2 percent to 88.18 at 11:20 a.m. in Tokyo. Japan's Nikkei 225 Stock Average slid 0.8 percent to 11,209.93 and South Korea's Kospi index lost 1.9 percent to 800.47.

BHP Billiton, which gets a fifth of its sales from oil, and Woodside Petroleum Ltd., Australia's second-largest oil producer, paced gains among regional producers and explorers after crude- oil futures in New York rose as high as $42.45 a barrel. OPEC ministers meet tomorrow to discuss boosting production.

``We've been overweight oil stocks, like Woodside and BHP, since last year because we see the oil price going to $50 a barrel,'' said Reid, who holds four times more Woodside shares than are represented in the S&P/ASX 200 Index.

Benchmarks in Hong Kong, Australia, New Zealand, Malaysia and the Philippines rose, while those in Taiwan and China declined. Markets in Singapore, Thailand and Sri Lanka are shut for holidays.

Airlines

Japan Airlines, the nation's largest carrier, fell 0.9 percent to 324 yen. Cathay Pacific Airways Ltd., Asia's sixth- largest airline, dropped 1.1 percent to HK$14.15.

Fuel prices are 55 percent higher than a year ago and may increase airlines' costs by as much as $12 billion annually, the International Air Transport Association, which represents more than 270 airlines worldwide, said last month.

South Korea's biggest airline, Korean Air, dropped 2.7 percent to 14,200 won. The company has said that for every dollar increase in fuel prices, its annual costs rise about 30 billion won ($26 million). Asiana Airlines Inc., the second-largest airline, dropped 2.1 percent to 2,315 won on the Kosdaq exchange. South Korea imports all its oil.

``The stock market may be very volatile on oil price movements because surging oil prices are not only a problem for individual companies but also for the whole South Korean economy,'' said Lee Young Jae, who helps manage the equivalent of $343 million at MyAsset Investment Management Co. in Seoul.

Among oil producers, BHP gained 0.7 percent to A$12.18. Woodside Petroleum rose 0.7 percent to A$16.61.

Japan Petroleum Exploration Co., the nation's biggest producer by market value, added 2.7 percent to 4,570 yen.

Japanese Banks

Japanese lenders fell after the Nihon Keizai newspaper said the Financial Services Agency may require UFJ Holdings Inc. to meet stricter oversight requirements as it probes possible breaches of disclosure rules.

``UFJ has to provide investors with assurance that it's going to seriously turn around its business,'' said Shigeharu Shiraishi, who oversees the equivalent of $15 billion at SG Yamaichi Asset Management Co. in Tokyo. ``Concern that UFJ doesn't have a clear view of how to tackle its problems is worsening market sentiment.''

UFJ, the only one of Japan's four largest banks to report a loss last fiscal year, slid 5.4 percent to 509,000 yen. Mizuho Financial Group Inc., the nation's largest bank, fell 1.9 percent to 466,000 yen.

The regulator may impose a series of business improvement orders on UFJ, the Nihon Keizai reported. The Financial Services Agency is investigating whether the bank inflated the value of its loans and kept records that were different from those submitted to inspectors.

Goldman, Sachs & Co. dropped UFJ from its current investment list saying that the bank's share price is unlikely to reach the brokerage's 12-month forecast of 970,000 yen.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net.

Last Updated: June 1, 2004 22:24 EDT