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Friday July 18, 1:40 PM Asia stocks fall as financial worries persist * Freddie Mac mulls selling shares to raise capital-WSJ * Mixed bag of company results leave investors uncertain * Big investors like developed markets over emerging (Recasts, updates prices, adds WSJ article on Freddie Mac) By Kevin Plumberg HONG KONG, July 18 (Reuters) - Asian stocks fell on Friday, hurt by resource-related shares stung by oil's 10 percent decline this week and by weaker-than-expected results from Merrill Lynch, which deflated hopes for a recovery in the financial sector. Shares extended losses after the Wall Street Journal reported U.S. mortgage giant Freddie Mac was considering raising capital by selling as much as $10 billion new shares to investors, many of whom are expected to be existing shareholders. [ID:nSP71343] Persistent worries about the stability of the financial sector continued to weigh on the U.S. dollar, which shed early gains, especially after Merrill Lynch & Co posted a loss that was more than twice as large as expected. [ID:nN17199614] Japan's Nikkei share average fell 0.5 percent and was on track for its sixth consecutive losing week as concerns grew ahead of quarterly earnings from Citigroup , the largest U.S. bank, due later on Friday. Crude has fallen sharply this week to below $130 a barrel on fears about sluggish U.S. demand and slowly unwinding political tensions between the West and Iran, the fourth largest oil exporter. However, investors are more sensitive to headlines about the financial sector after a tepid reception for the U.S. government's bail out plan for the top mortgage finance companies, Fannie Mae and Freddie Mac. "Longer-term, people are concerned by the fact that even though U.S. authorities have talked a lot about support for Freddie Mac and Fannie Mae, there doesn't seem to be as much positive impact as the market would like," said Seiichi Miura, a strategist at Mitsubishi UFJ Securities in Tokyo. In Japan, oil and gas field developer Inpex Holdings Inc fell 5 percent and was the biggest drag on the market. Shares in the rest of the Asia-Pacific region fell 1.2 percent, according to an MSCI index , and were within striking distance of a 16-month low hit on Wednesday. Hong Kong's Hang Seng index was down 0.1 percent, weighed the most by a 4 percent fall in CNOOC Ltd , China's third-largest oil producer. Asia's biggest oil refiner Sinopec Corp said late on Thursday its first-half net profit was likely cut in half compared with a year ago, having been squeezed between soaring crude prices and China's price caps on energy products. [ID:nHKG258307] Australia's benchmark index dropped 1.3 percent, struck by declines in both energy-related shares and stocks in the volatile financial sector. The index is set to post its ninth consecutive weekly loss, the longest streak in six years. VALUATION MATTERS Beside Merrill Lynch, Google and Microsoft Corp also posted lower-than-expected quarterly earnings overnight. But IBM surprised with a much higher-than-expected profit and JPMorgan's results were helped by underwriting and bond trading, leaving investors with a muddled view on how the global situation of high inflation and slow growth is affecting company profits. Valuation is playing a major role in where big investors are placing their money, according to State Street Global Markets, which tracks 15 percent of the world's tradeable assets. The firm measures valuation by looking at the proportion of market value not accounted for by book value. On this basis, developed market valuations are the cheapest in 20 years, while emerging market assets valuations have remained relatively high because of the absence of credit stress in developing countries. "Developed equity markets are being seen as a safe haven. Though inflation is high relative to recent history ... it has yet to steamroller out of control," State Street analysts said in a report. The search for relative safety pushed up U.S. Treasury bond prices in Asia, bouncing back after two straight days of losses after disappointing earnings reports released after the closing bell on Wall Street. The benchmark 10-year Treasury note rose 2/32 in price to yield 3.980 percent, down a basis point from late U.S. trade the previous day and falling further after bonds posted late gains following the after-hours results. The euro was largely unchanged against the dollar at $1.5857, about two cents below an all-time high touched on Tuesday. Against the yen, the dollar was largely steady at 106.20 yen. (Additional reporting by Elaine Lies in Tokyo) (Editing by Anshuman Daga)