May 25 (Bloomberg) -- Asian stocks fell after oil futures rose to a record close, renewing concern higher energy costs will slow economic growth and hurt earnings at carriers including Korean Air Co. and Japan Airlines System Co.

``Everybody will have to pay more,'' said Winson Fong, who helps manage $2.4 billion at SG Asset Management in Singapore. Higher oil prices ``will feed into other prices such as petrochemical prices, causing inflationary stress. There may be more downside'' for stocks.

The Morgan Stanley Capital International Asia-Pacific Index, which tracks more than 850 stocks in the region, slipped 1.4 percent to 85.81 at 3:30 p.m. in Tokyo. Japan's Nikkei 225 Stock Average lost 1.3 percent to 10,962.93, while South Korea's Kospi index sank 2 percent to 784.06.

The MSCI Asia-Pacific index tumbled 12 percent this quarter amid concern that rising crude prices will slow economic growth in countries that import most of their oil, such as Japan, and fuel inflation at a time when the U.S. and China are considering raising borrowing costs.

In Japan, banks also fell after the nation's two biggest lenders, Mizuho Financial Group Inc. and Mitsubishi Tokyo Financial Group Inc., said profits will decline by at least a fifth this business year as they struggle to boost lending.

All other benchmarks in the region dropped, except those Taiwan, Malaysia, the Philippines and Sri Lanka.

Asian Airlines

The Bloomberg Asia Pacific Airlines Index, which tracks 16 of the region's largest carriers, slid 1.8 percent, poised to end a two-day, 2.7 percent advance.

Korean Air, the nation's largest air carrier, plunged 5.2 percent to 13,600 won. Goldman Sachs Group Inc. cut its rating on the company to ``in-line'' from ``outperform,'' on concern higher fuel costs will dent earnings.

Fuel purchases account for almost a fifth of Korean Air's operating expenses. For every dollar gain in fuel prices, the airline's annual costs rise about 30 billion won ($26 million).

Japan Airlines, Asia's largest carrier by sales, dropped 1.3 percent to 314 yen. Last week, Japan Airlines said it may lose 18 billion yen ($159 million) from its current profit, or pretax profit from operations, if the average price of jet fuel remains at $40 a barrel this year.

Qantas Airways Ltd. lost 2.1 percent to A$3.34. Fuel made up about 15 percent of 2003 costs at Australia's largest carrier. Singapore Airlines Ltd., which said fuel accounts for about a fifth of its total costs, slid 2.8 percent to S$10.30.

Jet Fuel

Cathay Pacific Airways Ltd., Asia's sixth-biggest airline by sales, fell 2.8 percent to HK$14.05. A one cent rise in the price of jet fuel adds HK$60 million ($7.7 million) to its operating costs, Chairman James Hughes-Hallett said.

The price of jet fuel has risen 56 percent in the past year to $44.08 a barrel, according to oil-pricing service Platts. The higher prices prompted Cathay Pacific and 12 other airlines to apply to Hong Kong's Civil Aviation Department to implement a surcharge for long-haul and short-haul routes.

Crude oil futures rose 4.5 percent to $41.72 a barrel yesterday on the New York Mercantile Exchange, the highest closing price since futures began trading in 1983.

Japan, the world's second-biggest economy after the U.S., imports almost all of its oil. Finance Minister Sadakazu Tanigaki said this week that a surge in crude prices may curb the country's economic growth.

Aeon Co., which overtook Ito-Yokado Ltd. to become Japan's No. 1 retailer last fiscal year, slumped 6 percent to 4,380 yen. Samsung Electronics Co., South Korea's biggest company by market value, dropped 3.7 percent to 492,000 won.

`Sensitive'

South Korea is the world's fourth-largest oil importer. A $1 increase in oil prices reduces the nation's economic growth rate by 0.1 percentage point, cuts the trade surplus by $750 million and raises consumer prices by 0.15 percentage point, according to the energy ministry.

``Most Asian countries import oil and their economic growth is very sensitive to record prices,'' said Kang Shin Woo, who oversees the equivalent of $1.5 billion as chief investment officer at PCA Investment Trust Management Co. in Seoul.

Kang said he's been reducing his holdings in high-growth companies such as Samsung Electronics. ``A defensive investment strategy seems to be better now.''

Japanese Banks

Mitsubishi Tokyo, Japan's second-largest bank, dropped 4.1 percent to 925,000 yen. Mizuho, the nation's largest bank by assets, lost 3.1 percent to 466,000 yen. Mitsubishi Tokyo expects its profit to decline 39 percent, while Mizuho forecast net income to fall a fifth in the year ending March 31, 2005.

Bank lending has fallen every month since the Bank of Japan started compiling figures in January 2001. Lending margins at the nation's banks average about 1.7 percent, half those in the U.S., and they rely on loans for at least 70 percent of profit.

``A decrease in profit is giving investors a reason to sell some of their bank holdings,'' Hiroshi Hashimoto, who helps manage $7.1 billion at Fukoku Capital Management Inc. in Tokyo.

Hashimoto keeps his stake in bank stocks below the industry's 10.3 percent representation on the Topix index.

General Property Trust, the fourth-biggest real estate investment trust in Australia, surged 12 percent to A$3.42 on speculation a rival bidder will top Lend Lease Corp.'s A$6.6 billion ($4.6 billion) offer.

Lend Lease's stock and cash bid values General Property shares at A$3.30 each based on closing prices before the bid was announced. Shares of Sydney-based Lend Lease slumped 6.1 percent to A$10.10.

Sitting Tight

``We're going to sit tight -- there's always the possibility of another bidder,'' said Peter Davidson, a portfolio manager at BT Financial in Sydney, which manages the equivalent of $30 billion, including a 5 percent stake in of General Property Trust. Stockland, the nation's third-largest real estate trust, is the most likely candidate, he said.

Nippon Oil Corp. jumped 5.1 percent to 644 yen, leading gains in Japan's Topix Oil & Coal Index. The subgroup rose 2.4 percent, making it the best performer among the 33 subgroups that make up the broader Topix.

Refiners advanced on expectations higher crude oil prices will allow them to pass on costs to customers by raising prices of oil products, Satoshi Onome, an oil analyst at UFJ Tsubasa Securities Co. in Tokyo, said.

Nippon Oil last week predicted higher profit this fiscal year as it raise prices of gasoline, diesel and other fuels faster than the gains in crude oil.

To contact the reporter on this story: Chan Sue Ling in Singapore slchan@bloomberg.net or Tomoko Yamazaki in Tokyo at 3119 or tyamazaki@bloomberg.net

Last Updated: May 25, 2004 02:43 EDT