Asian shares fell to their lowest in over a week on Monday, led by a 2 percent slide in Shanghai stocks as thin year-end trading made for exaggerated moves, not helped by mounting tensions on the Korean peninsula.

The euro slipped to a two-week low after last week's massive five-notch credit rating downgrade of Ireland by Moody's and euro zone leaders failed to reassure markets on how they will tackle the debt crisis in the short term.

With the year-end holidays looming, buyers were hard to be found, having taken profits since Asian stocks hit 2- year highs last week.

Asia Pacific stocks, as measured by MSCI <.MIAP00000PUS> fell 0.5 percent, having earlier dropped to lows not seen since December 8, while the index excluding Japan <.MIAPJ0000PUS> shed 0.8 percent.

Despite threats of war by Pyongyang, South Korea on Monday launched live firing drills on a disputed island after an emergency U.N. Security Council meeting failed to agree on how to defuse the crisis.

Share markets from Australia to Singapore were all in the red with Japan's Nikkei <.N225> down 0.8 percent, Hong Kong's Hang Seng index down 1.0 percent and South Korea's KOSPI <.KS11> 0.7 percent lower. Shanghai's stock index <.SSEC> fell 1.8 percent, having earlier slid about 3 percent.

We see a typical year-end money crunch plus jitters over continued PBOC tightening and consequently a lackluster market performance until early next year, said Shanghai Securities senior trader Zheng Weigang.

Technically, the fall in the Shanghai Composite Index to below its 250-day moving average indicates the market may struggle in the near term.

Even major miners like BHP Billiton erased gains to close lower on the day as support from higher commodity prices faded.

Copper, which came within a whisker of the record high on the London Metal Exchange, was last up 0.9 percent at $9,145 a tonne. Earlier, it rose as high as $9,257.50, not far off the record high of $9,267.50 set last week.

U.S. crude was flat near $88 a barrel.

Analysts generally expect strong growth in emerging economies to keep commodities in demand next year. JPMorgan forecasts a 17 percent return for the S&P commodities index, or the GSCI <.SPGSCI>, over the next 12 months.

Despite the negative start to the week, MSCI's Asia Pacific stock index is still up some 10 percent so far this year, compared with a rise of around 8 percent for the MSCI world equity index <.MIWD00000PUS>.

JPMorgan predicts emerging markets equities will provide some of the best returns next year among global stocks. It forecasts the MSCI emerging markets stock index will rise to 1,500 in 2011 from around 1,108 currently <.MSCIEF>.

EURO SAGS

The euro plumbed a two-week low at $1.3125 was looked set to test support at $1.3100-3090, while the dollar edged up 0.1 percent <.DXY> versus a basket of major currencies.

The dollar is generally supported this morning by tensions in the Korean peninsula and concerns over European debt problems, said Tsutomu Soma, senior manager at Okasan Securities.

The euro has been under pressure, especially since the downgrading of Ireland last week. ... Selling pressure could increase should the euro break $1.3.

The dollar's upside was capped, however, as U.S. Treasury yields retreated from recent highs. The 10-year bond yield fell 2.7 basis points on the day to 3.311 percent, off the seven-month peak of 3.568 percent set last week.

Some investors and analysts have taken a view the market was pricing in too much economic improvement too fast, prompting yields to ease back.

(Additional reporting by Lu Jianxin in Shanghai and Chikafumi Hodo and Hideyuki Sano in Tokyo; editing by Kazunori Takada)

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