Asian shares, oil prices slide on growth concerns

Asian shares drooped and oil prices fell to two-year lows on Friday after weak German export data raised fears that a recession at the heart of Europe could slow down the global economy.

Japan's Nikkei share average .N225 fell 1.1 percent in early trade while MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shed 0.8 percent.

Concerns about global economic growth hit oil prices hard, with Brent oil prices LCOc1 falling to $89.24 a barrel, its lowest level since mid-2012.

US crude futures CLc1 traded at $84.68, having fallen to $84.06 on Thursday, its lowest level in almost two years.

Investors have long believed that a solid US recovery will eventually help lift many other sluggish economies around the world, including those in Europe.

But now there is growing fear that the US economy - the world's largest, but less than a quarter of the entire global economy - cannot escape unscathed when Europe is stalling and many other big economies, including China, Japan and Brazil, face their own hardships.

The latest came shock came from Germany, which reported on Thursday that its exports fell 5.8 percent in August, the worst decline since January 2009.

A string of dismal data from Germany, the engine of the euro zone economy, this week fed into anxieties about recession in the euro zone.

Wall Street stocks slumped 2 percent on Thursday, with S&P 500 index .SPX hitting two-month closing low.

The CBOE volatility index .VIX, a measure of investor anxiety, rose to highs not seen since early February.

"If US stocks jumped back today, then the market could go back to the same habit of assuming everything will be alright. But if they fall big for two days in a row, markets will be clearly entering a whole new phase," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

Anxieties about global economic growth smothered a short-lived rally in equity markets around the world that was sparked by speculation the Federal Reserve would not rush interest rate rises.

Adding to jitters, St. Louis Federal Reserve Bank President James Bullard said he was concerned by a disconnect between the market's view of the Fed's rate-increase path and the central bank's own view.

Financial markets have constantly expected much slower tightening by the Fed than US central bank policy makers' own projections.

Federal funds rate futures <0#FF:> are pricing in rate hikes to just above 0.50 percent by the end of next year, far below the Fed board members' median forecast above 1.25 percent.

The 10-year US Treasuries yield fell to a 16-month low of 2.2790 percent on Thursday before bouncing back slightly on profit-taking. It last stood at 2.318 percent US10YT=RR.

The euro stayed on the back foot after the weak German data. It had reached a 2-1/2 week high of $1.2791 EUR= early on Thursday, but beat a hasty retreat and was last trading at $1.2688.

Risk-off mood underpinned the yen, with the dollar trading at 107.88 yen JPY=, having fallen to three-week low of 107.53 yen on Thursday.