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Lower oil, stronger US dollar boost Asia stocks

(Agencies)
Updated: 2008-06-16 11:31

HONG KONG -- Asia stocks rose slightly on Monday as the rebounding US dollar boosted confidence in the region's exporters, but government bonds fell on expectations that central banks will raise interest rates to fight inflation.

Oil prices slipped under $135 a barrel after United Nations Secretary General Ban Ki-moon said Saudi Arabia, the world's largest exporter, had told him it will boost output to the fastest in decades.

Along with US inflation data that showed underlying price pressures rose moderately in May, and the biggest weekly rise in the US dollar in three years, the easing in crude prices improved the prospects of some of Asia's well-known exporters such as Canon Inc in Japan and Samsung Electronics in South Korea.

UN chief Ban Ki-moon speaks during a press conference in the Red Sea city of Jeddah. OPEC powerhouse Saudi Arabia will raise oil production by 200,000 barrels in July in response to heightened demand, Ki-moon said on Sunday. [Agencies]

"A softer yen sparked hopes for upward earnings revisions for some exporters," said Takahiko Murai, general manager of equities at Nozomi Securities in Tokyo.

"But we have to brace for an eventual dramatic slowdown in Japan, where the stock market and the economy depend on overseas demand, considering the recent declines in Asian shares and rising inflation worries in emerging countries."

Japan's Nikkei share average climbed 1.6 percent with the yen falling to a four-month low against the dollar.

South Korea's KOSPI rose 1 percent and Taiwan's TAIEX jumped 1.3 percent, led by the technology sector.

The MSCI index of Asian equities rose 0.75 percent, after last week posting its largest decline since the week of August 19. Stocks in the Asia-Pacific region outside of Japan were up 0.4 percent

Equity markets in emerging Asia are viewed as particularly vulnerable to high oil prices because many of the region's central banks have had pro-growth policies for so long and their exchange rate policies are tightly woven to the US dollar.

Last week Asia ex-Japan equity funds suffered the biggest redemptions of any major fund group and saw money going out the door for the eighth week in the last nine, according to EPFR Global, a Boston-based research firm that tracks $11 trillion in assets.

"Inflation was again the key driver of sentiment towards Asia, with investors fretting about the combination of social unrest, higher interest rates and weaker public finances triggered by the rapid escalation of food and energy prices," said EPFR Global analysts in a note to clients.

Government bonds around the world continue to be sold off on the view central banks are more concerned about the inflationary effects of high oil prices than sluggish economic growth.

The benchmark yield on the 10-year Japanese government bond, which moves inversely to the price, rose to the highest since July 2007, up 2.5 basis points to 1.890 percent

US Treasuries were relatively steady in Asian trade. The two-year US yield last week had its biggest rise in 26 years as investors scrambled to price in bets the Federal Reserve could raise its benchmark interest rate this year.

Seventeen of the 31 central banks around the world tracked by Reuters have raised their interest rates this year, including China, India, Indonesia and the Philippines.

US light crude prices fell 74 cents to $134.12 a barrel, $5 off from an all-time record of $139.12 hit earlier this month.

The dollar was up 0.3 percent against the yen at 108.40 yen strengthening by 3 yen so far in June. The euro slipped 0.1 percent to $1.5388

US corn futures rose more than 3 percent to a fresh record high as flooding in the US Midwest raised the chances of reduced output from the world's largest corn exporter.