June 27 (Bloomberg) -- Asian stocks fell, sending the region's benchmark index to its worst first half since 1992, as Japan's inflation rose to the highest in a decade and oil traded at a record.

Matsushita Electric Industrial Co., the world's largest consumer-electronics maker, declined after Japan's household spending dropped. Warehouse Group Ltd. tumbled after New Zealand's economy contracted and the discount retailer cut its profit forecast. Taiwan's Taiex Index slumped the most in five months after the central bank raised borrowing costs to a seven- year high. China's CSI 300 Index fell 5.5 percent, extending this year's decline to 47 percent.

``We've entered a period of global stagflation, with record oil prices and slowing growth,'' said Leslie Phang, Singapore- based head of investments at the private clients unit of Schroders Plc, which manages $260 billion assets worldwide. ``Central bankers have got to decide whether they want to sacrifice growth or live with inflation.''

The MSCI Asia Pacific Index lost 1.5 percent to 136.88 at 7:11 p.m. in Tokyo, set for its lowest close since March 24. Six stocks dropped for each that rose on the 990-member gauge and nine of the 10 industry groups retreated.

The index is down 13 percent this year, headed for its worst six months to June since a 23 percent loss in 1992, when Japan's asset bubble was deflating. Stocks have slumped in 2008 on concern quickening inflation, a 46 percent jump in oil and almost $400 billion of credit-related losses by the world's largest banks will hurt growth.

Markets Slump

Japan's Nikkei 225 Stock Average sank 2 percent to 13,544.36, a seventh day of declines. Aiful Corp., Japan's biggest consumer- finance company by assets, fell for a ninth day. The lender said it may sue Lehman Brothers Holdings Inc. for suggesting it's insolvent.

New Zealand's NZX 50 Index lost 2 percent. All Asian equity markets dropped apart from Sri Lanka and Vietnam.

U.S. stocks tumbled yesterday, sending the Dow Jones Industrial Average to its worst June since the Great Depression, as higher oil, credit-market writedowns and a slowing economy threatened to extend a yearlong profit slump. Futures on the Standard & Poor's 500 Index gained 0.1 percent.

Oil rose to a record for a second day, climbing above $141 a barrel today for the first time in New York.

Matsushita Electric fell 2.3 percent to 2,295 yen. Sony Corp., the second-largest maker of consumer electronics, declined 4.4 percent to 4,840 yen, the sharpest drop since April 14.

Rising Inflation

Core consumer prices in Japan climbed 1.5 percent in May from a year earlier after rising 0.9 percent in April, the statistics bureau said. Household spending declined 3.2 percent, the most since September 2006.

Warehouse, which joins rival Briscoe Group Ltd. in cutting profit targets, plunged 7.1 percent to NZ$4.19, the most this year, after reducing its profit forecast by 10 percent. New Zealand's economy shrank in the first quarter, the first decline since 2005, and may have now slipped into recession, according to economists.

Cathay Financial Holding Co. dropped 4.6 percent to NT$68.2. Taiwan's banks fell on concern lending growth will slow after the central bank raised interest rates by 12.5 basis points to 3.625 percent and unexpectedly increased the amount of cash banks must put aside for the first time since 1989.

``If central banks continue to push for tighter monetary policy while the economy is on the skids, you could see a major collapse,'' said Masaru Hamasaki, a senior strategist in Tokyo at Toyota Asset Management Co., which manages about $3.3 billion.

Nine-Day Slump

Aiful plummeted 6.5 percent to 1,205 yen, capping a nine-day, 28 percent decline. Lehman analyst Walter Altherr said in a June 23 report that Aiful's parent company is ``arguably insolvent.'' Calls to Lehman from Bloomberg News seeking comment were not immediately returned.

Shanghai Pudong Development Bank Co., the Chinese partner of Citigroup Inc., lost 6.3 percent to 22.99 yuan. China Vanke Co., the nation's biggest listed property developer, fell 7.3 percent to 9.04 yuan.

``There's speculation in the market that the central bank will raise interest rates over the weekend,'' said Zhang Ling, who manages the equivalent of $1.1 billion at ICBC Credit Suisse Asset Management Co. in Beijing. ``Investors are panicking.''

The central bank has ordered lenders to set aside a record amount of money in reserve after raising interest rates six times in 2007.

Cathay Pacific Airways Ltd., Hong Kong's largest airline, fell 1.7 percent to HK$14.78 after agreeing to pay a $60 million fine to settle a U.S. air-cargo price-fixing probe.

Newcrest Mining Ltd., the largest Australian gold mining company, surged 12 percent to A$28.89, after it secured new natural gas supplies and the price of bullion climbed. Gold jumped 3.7 percent to $915.10 an ounce in New York yesterday.

To contact the reporter for this story: Chua Kong Ho at kchua6@bloomberg.net;

Last Updated: June 27, 2008 06:23 EDT