Asia stocks sag after oil tumbles, dollar on defensive before Fed speech

By Shinichi Saoshiro

TOKYO (Reuters) - Asian stocks sagged on Tuesday, weighed by a sharp decline in crude oil prices as Libyan ports reopened, while the dollar was on the defensive ahead of Federal Reserve Chairman Jerome Powell's first congressional testimony.

Overnight on Wall Street, the Dow edged up 0.2 percent but the S&P 500 lost 0.1 percent as energy shares were hit by the drop in oil that offset a jump in financials.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.1 pct lower following two sessions of gains.

"Crude has been rising steadily so some kind of adjustment was due. From this context the impact on the broader economy, inflation and therefore the stock markets should be limited," said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.

Crude prices slumped more than 4 percent on Monday, with Brent futures reaching a three-month low of $71.52 a barrel, as Libyan ports reopened and traders eyed potential supply increases by Russia and other producers.

Concerns over China's second-quarter economic growth also weighed on oil prices. The country's economy expanded at a slower pace as Beijing's efforts to contain debt hurt activity, while June factory output growth weakened to a two-year low.

Australian stocks <.AXJO> fell 0.3 percent, South Korea's KOSPI lost 0.35 percent and Japan's Nikkei <.N225> edged up 0.3 percent.

But Brent has gained about 7.5 percent in 2018, during which it poked above $80.00 a barrel in May to a 3-1/2-year high.

"The stock markets have been quite steady recently, and this shows that investors are starting to look beyond the U.S. midterm elections, by then which President (Donald) Trump's posturing is expected to have peaked out," Monji at Daiwa SB Investments said.

In currencies, the dollar index against at basket of six major currencies was nearly flat at 94.535 .

The index shed 0.25 percent on Monday, pushed back from a two-week high of 95.241 scaled on Friday ahead of Fed Chairman Powell's first congressional testimony.

Powell will testify on the economy and monetary policy before the U.S. Senate Banking Committee on Tuesday, followed by testimony on Wednesday to the House of Representatives Financial Services Committee.

He is likely to reiterate the Fed's stance towards gradual monetary policy tightening, although any suggestion of caution on recent trade tensions could unnerve the markets.

The euro was steady at $1.1710 after adding 0.25 percent overnight. The dollar inched up 0.1 percent to 112.37 yen .

The Australian dollar dipped 0.1 percent to $0.7413 .

Brent crude futures were 0.3 percent higher at $72.11 a barrel after the previous day's steep fall. U.S. crude bounced 0.05 percent to $68.09 a barrel after shedding 4.1 percent on Monday.

(Editing by Sam Holmes)