Asian stocks fell more than 1 per cent on Wednesday, hurt by financial shares

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ahead of results from Lehman Brothers, which has been rocked by the same crisis that led Washington to take over Fannie Mae and Freddie Mac this week.

Oil prices rose toward $104 a barrel, reversing earlier losses, after OPEC agreed to return to its 2007 production target, an effective cut in output. But crude remains close to $100, below which Goldman Sachs said earlier this week could signal a global recession. A retreat in oil prices from a record high in July has supported the U.S. dollar, which hit an 11-month high against the euro on Tuesday.

While the U.S. government bailout of its top mortgage finance companies on Sunday has removed a big risk of a system-wide failure, problems at other financial institutions were painful reminders of how severely an avalanche of bad loans has threatened almost every major economy.

Shares of firms such as Macquarie Group Ltd, Australia's largest investment banks, and Mizuho Financial Group, Japan's second-largest lender, sank after Lehman stock plunged 45 percent overnight on fears it would not be able to raise the funds it needs to survive.

Lehman reports its quarterly results ahead of the U.S. stock market open.

"Today's fall is a Lehman shock," said Yoku Ihara, manager of the investment information department at Retela Crea Securities. "We thought the market would rebound after the Freddie and Fannie news, but Lehman rekindled worries."

Tokyo's Nikkei share average fell 1.1 percent after briefly touching a six-month intraday low earlier.

Australia's benchmark S&P/ASX 200 index was down 2 percent, led by shares of miners BHP Billiton and Rio Tinto Ltd.

The Asia-Pacific index of shares traded outside of Japan was 1 percent lower, moving back towards Friday's 22-month low.

Hong Kong's Hang Seng index dropped 2.3 percent, with shares of the world's largest cellular operator China Mobile the biggest drag.

Government bonds meanwhile benefited from the worries about Lehman Brothers and the fall in stocks. The September 10-year JGB futures rose 0.73 point to 137.60.

The euro edged up 0.2 percent to $1.4140, but is nearly 20 cents lower than where it was in mid July when crude prices peaked.

The dollar gained ground against the yen, rising 0.3 percent to 107.25 yen, largely as dealers covered their short-term bets on the Japanese currency.