Asia stocks fall but still outperform other markets

Asian stocks fell ahead of a long list of corporate results on Thursday that may shed light on the year's earnings outlook, though the region continued to outperform Wall Street in July.

The increasing possibility of a US credit rating downgrade, with Washington still not close to sealing a deal to lift the US debt ceiling, loomed over equity markets and was a factor in knocking the S&P 500 index down 2% overnight.

By comparison, Japan's Nikkei share average was down 1.1% in early trade. Clothing chain company Fast Retailing, whose stock hit a 13-month high on Wednesday, was off 1.7%.

Hitachi Construction Machinery, a subsidiary of Hitachi Ltd -- Japan's largest industrial electronics company, saw its shares jump 4.5% after posting a 65% annual rise in April-June net profits.

Japan's biggest consumer electronics makers are expected to show quarterly earnings slumped due to the March earthquake, but investors will focus on whether these companies can meet their forecasts for a swift recovery, given a fragile global economy.

"Buying on dips in companies with good earnings may continue, but exporters may not fare well for the time being as long as there are concerns about the US economy," said Hideyuki Okoshi, general manager at Chibagin Securities in Tokyo.

The MSCI index of Asia Pacific stocks outside Japan was down 1 percent, with technology, commodity-related and consumer shares the biggest drags.

The index is up 1% so far in July compared with a 0.9% fall in the MSCI all-country world index and a 1.2% decline in the S&P 500.

The Australian dollar has been an attraction for investors in currency markets looking for opportunities in the midst of debt crises in the United States and the euro zone.

The currency was up 0.2% at USD 1.1040 and not far from a post-float high of USD 1.1081 on Wednesday after Australian inflation data.

The US dollar index, which tracks its value against major currencies, was barely changed on the day though has fallen 3.4% since hitting a four-month two weeks ago.

Gold has also been a big winner as investors seek out hard assets to hedge against risks. Gold rose 0.1% to USD 1,615 an ounce after hitting an all-time high of USD 1,628 on Wednesday.