Asian shares skid to 2011 levels as oil slump intensifies

The Nikkei futures' Friday close <0#NIY:> suggests Japan's Nikkei .N225 is likely to fall more than two percent, below its September trough to one-year lows while Australian shares on Monday fell 1.7 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS, which has fallen 10.5 percent in the first two weeks of the year, is within sight of its 2011 low, which is 3.7 percent below its Friday close.

On Wall Street, S&P 500 .SPX hit a 15-month low on Friday, ahead of a market holiday on Monday for Martin Luther King Jr. Day.

An unexpected drop in retail sales and the third consecutive monthly fall in industrial output in December added to the latest indication that U.S. economic growth braked sharply in the fourth quarter.

Following those data, the Atlanta Federal Reserve's closely-watched GDPNow forecast model showed the U.S. economy is on track to grow 0.6 percent in the fourth quarter, slowing sharply from 2.0 percent growth in the third quarter.

U.S. companies' fourth-quarter profits are expected to decline more than four percent, which would be the second straight quarterly decline.

Investors also further cut back their expectations on the U.S. Federal Reserve's rate hikes, with short-term interest rate futures <0#FF:> pricing in only one rate hike by the end of year, compared to two hikes priced in at the start of year. The two-year U.S notes yield fell to 0.850 percent US2YT=RR, down from 1.103 percent at the end of last year. Outside the United States, the economic outlook appeared even worse, with the energy sector and oil producing countries hit the hardest.

"The biggest focus is oil prices. Oil producing countries have to sell their assets to finance their budget gaps. They are selling shares around the world," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

MSCI's broadest gauge of the world's share markets covering 46 markets .MIWD00000PUS fell to its lowest level since July 2013, having fallen almost 9 percent in the first two weeks of 2016.

Oil prices plummeted 6 percent on Friday, bringing their fall since the start of year to 21 percent, marking the worst two-week decline since the 2008 financial crisis, on fear of over-supply and softening demand.

Brent crude futures fell more than three percent to below $28 per barrel LCOc1 in early Monday trade, touching their lowest level since 2003.

Oil prices have been declining sharply since mid-2014 on increased U.S. shale oil production, soft demand growth due to an economic slowdown in China and an end of cheap dollar funding that had fueled energy investments as the Fed scaled back stimulus and tightened its monetary policy.

In addition, international sanctions against Iran have been lifted, allowing Tehran to return to an already glutted oil market. Oil prices have been falling in anticipation of the move.

Saudi Arabian shares .TASI fell 5.4 percent on Sunday, hitting a five-year low, as Riyadh could be pressured into more spending cuts to reduce the red ink, slowing economic growth further and conceivably threatening a recession if oil prices stay at current levels.

Brazilian shares hit their low last seen in March 2009 as there is little sign Latin America's largest economy can get out of recession soon.

In the currency market, commodity-linked currencies took the brunt, with the Canadian dollar CAD= hitting a low last seen in early 2003.

The yen held firm after having risen to five-month high of 116.51 to the dollar JPY= on Friday.

(Editing by Chris Reese)