Asian stocks fell on Tuesday as fears of further clampdowns on lending in China and a U.S. plan to freeze domestic spending sparked worries about the outlook for global growth.

Highlighting fears that a global recovery may be sputtering, South Korea reported weaker-than-expected growth in the fourth quarter, which cast doubts about consumption in Asia's fourth-largest economy. Stocks in Seoul <.KS11> fell nearly 2 percent.

The budget freeze in the United States, along with the latest moves by China, will hurt the South Korean economy, if not cripple all the recent recovery momentum, said Park Sang-Hyun, chief economist at Hi Investment & Securities in Seoul.

The global economy still needs government spending to stay on the recovery path.

The MSCI index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS> fell 1.2 percent, with banks and technology shares leading the decline as they have for much of the past week after the White House proposed new restrictions which would hit profits at big banks.

The Nikkei <.N225> fell 1 percent as investors grew cautious heading into Japan's earnings seen and awaited key economic indicators such as U.S. GDP later in the week.

U.S. President Barack Obama, under pressure from deficit hawks, will seek a three-year freeze on domestic spending in his 2011 budget that would save $250 billion by 2020, administration officials said on Monday.

While financial markets would welcome any attempts by the U.S. to gets its longer-term debt under control, some in Asia were concerned a spending freeze now could rob the U.S. economy of its newfound growth as its struggles to throw off recession.

Sentiment was further eroded after banking sources said China had implemented its latest rise in bank reserve ratios to curb excessive lending. Sources said several Chinese banks would see their extra reserve ratios take effect today (Tuesday).

The central bank told some banks last week to increase their reserve ratios by 0.5 percentage point. No new banks have been slapped with fresh higher reserve requirement ratios, the sources said.

Asian shares also recoiled as a newspaper said Chinese policymakers were still finding it difficult to rein in strong lending by banks despite taking increasingly assertive actions to slow strong credit growth, which Beijing fears could spur inflation and lead to economic overheating.

Robust Chinese demand has been driving an Asian and global recovery, offsetting persistent weakness in the United States, Europe and Japan. Markets fear more aggressive action by its central bank to moderate growth could slow that recovery, reducing its demand for commodities and other imported goods.

Shanghai stocks <.SSEC> fell 2 percent and Hong Kong's Hang Seng index <.HSI> slid 1.7 percent.

The yen rose broadly after selected Chinese banks were ordered to raise their reserve ratios from Tuesday.

The dollar fell to 90.02 yen, pulling away from its intraday high of 90.56 yen. The dollar was last at 90.13 yen, down 0.2 percent on the day.

Market players said the yen would take further cues from a Bank of Japan policy decision due later on Tuesday.

The BOJ is seen likely to keep interest rates at 0.1 percent and to hold off on new initiatives at its meeting, having introduced a new funding operation last month after a period of intense government pressure for action to support the fragile economy.

The overriding concern is still the tightening on China's part, said John Mar, regional co-head, Asia equity sales at Daiwa Capital.

This morning's headlines about the loans of big banks exceeding 1.4 trillion is probably a signal to the market that the Chinese government will be still vigilant on tightening measures, said Daiwa's March

Oil fell below $75 a barrel on fears that global energy demand will cool if the recovery looses steam.

(Editing by Kim Coghill)

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