Asian shares fell on Monday as concerns about slumping corporate profits and the still-uncertain outlook for the global economy fueled a retreat from recent highs, keeping the safe-haven yen broadly higher.

Shares of Panasonic <6752.T> slumped 7.8 percent after forecasting a bigger-than-expected annual loss after the market's close on Friday, while Australian mining shares such as Rio Tinto retreated after a slump in oil and metal prices.

The exception could be India, where the stock market is expected to surge and the rupee to strengthen past 49 per dollar on hopes that the clear election victory of the ruling coalition on Saturday will lead to a strong and stable government and boost economic reforms.

The MSCI index of Asian stocks outside Japan lost 1.5 percent, while Japan's Nikkei average <.N225> dropped 2.9 percent, with shares of exporters under pressure as the yen advanced.

Recent economic indicators show that the worsening of the economy appears to have stopped, but now we need to see signs of recovery or it'll be difficult for stocks to rise decisively, said Yoku Ihara, manager at the investment information department of Retela Crea Securities.

Investors are hoping that the global economy may have hit a bottom, though the timing and potential strength of a recovery are far from clear. The MSCI index has surged 53 percent from its 2009 low on March 4 to its yearly high on May 11, but the global equity rally has shown signs of losing steam in recent days.

U.S. economic reports on Friday were comforting, showing April consumer prices unchanged and industrial output declining at a slower pace.

Confidence is improving among Japanese manufacturers, according to a Reuters monthly poll, while U.S. consumers in May were also were optimistic.

On the other hand, recent weak outlooks from Asian blue chips such as Panasonic and Sony <6758.T> and other signs of weakness in Europe are not inspiring confidence.

Data on Friday showed euro zone economies shrank far more than expected in the first quarter, with Germany posting its worst performance since reunification, though analysts note the first quarter may have marked the low point.

Most major indexes in Asia, including in South Korea <.KS11> and Australia <.AXJO> fell more than 1 percent each on Monday.

OIL UNDER PRESSURE

Growing investor caution is affecting riskier assets such as oil, which slumped nearly 4 percent on Friday amid doubts about the strength of global demand for energy.

Global energy forecasters have recently downgraded their forecasts for global energy demand in 2009, with the International Energy Agency saying the decline in oil consumption in 2009 would be the steepest since 1981.

U.S. crude futures were flat at $56.31 a barrel.

Some investors are also worrying about inflation risks in months ahead as governments and central banks spend trillions of dollars to stimulate growth and prevent prices from dropping too much.

Gold held close to a six-week high of $933.65 an once hit on Friday, as investors sought a hedge against inflation. The yellow metal trading at $929.65 during Asia trade, compared with its notional close of $930.70 on Friday.

Investors are also switching to assets that tend to benefit during volatile times.

The yen in particular is drawing funds away from other currencies including commodities-related units which had been bought sharply before, said Yoshihisa Kanzaki, a trader at Shinkin Central Bank.

The euro slid as low as 127.42 yen on trading platform EBS, down 0.8 percent from late New York trade on Friday.

The dollar fell 0.5 percent to 94.75 yen, staying near a two-month low of 94.55 yen struck earlier on EBS.

Currencies that benefit when investors are in a risk-taking mood retreated. The Australian dollar fell 0.6 percent to $0.7462 and dipped 0.7 percent to 70.79 yen, its three-week low, according to Reuters data.

Regional bonds gained, with Japanese government bond futures up 0.32 point to 137.36.