Oil pulls back on Saudi reassurances, stocks rise

By @ibtimes on

Oil hovered above $112 a barrel on Friday and Asian stocks broke a four-day losing streak as concerns eased that a recent surge in energy prices would hurt demand for riskier assets and threaten broader economic growth.

European stocks were set to open higher, according to financial spreadbetters, while U.S. stock futures rose 0.4 percent, indicating a firmer open on Wall Street later in the day.

Brent oil had vaulted more than 7 percent to almost $120 on Thursday before pulling back on rumors that Libyan leader Muammar Gaddafi had been shot and on Saudi Arabia's reassurances that it could pump more oil to make up for Libyan supply disruptions.

Japan's Nikkei average <.N225> rose 0.7 percent, its first gain in four days, while Hong Kong advanced 1.5 percent, helped by strong earnings from insurer AIA Group <1299.HK> and a rebound in airlines, which are facing sharply higher fuel bills.

The broader Asia-ex Japan stocks <.MIAPJ0000PUS> was trading more than 1 percent higher.

Foreign investors are buying back after the Nikkei lost some 400 points this week, but it's still early days and we need to wait to see what happens in Libya over the weekend to be able to say if the correction is already over or not, said Toshiyuki Kanayama, a market analyst at Monex Inc.

Still, the broader market was down nearly 3 percent for the week and analysts said a rebound in oil prices may trigger a sell-off in the markets again.

Even if oil markets stabilize, broader sentiment could remain cautious as high fuel prices could still add to inflationary pressures and dampen consumer demand.

Since the Libyan crisis erupted, some of the worst performing markets within Asia are India, Korea and Taiwan due to their higher dependency on oil imports, Brown Brothers Harriman said.

FIRM BIAS

Brent crude oil futures rose $1.50 to $112.86 per barrel, while U.S. crude neared $98.

Although oil prices have come off 2-1/2 year highs, they are still up 12 percent in the past three sessions alone, raising concerns about a wider slowdown in global growth and giving a firm bias to the prices of safe haven assets such as gold, U.S. Treasuries and, of late, the Swiss franc.

The dollar stayed above a record low against the franc on Friday after suffering heavy losses overnight as investors sought safety in other currencies, fearing the unrest in Libya could spread to other oil producers.

It has fallen nearly 4.8 percent against the franc in the last two weeks, its worst showing since June.

Meanwhile, the euro held near three-week highs at around $1.3822, helped by more hawkish comments from European Central Bank officials with ECB policymaker Axel Weber saying the only direction for interest rates to go is up.

Other ECB officials recently talked tough about fighting inflation, reinforcing market view that the ECB will raise interest rates before the U.S. Federal Reserve.

With markets continuing to focus on inflation-adjusted returns, BNP Paribas said, the Fed is seen as least credible central bank, the ECB as the most credible while the Bank of England lying somewhere in between.

In credit markets, the benchmark for non-Japan Asia, the iTraxx investment grade index saw its spreads tighten by two bps to 109.5/111.5 after blowing out to its widest level in nearly a month this week, traders said.

Gold, another haven in times of global turmoil, consolidated around $1,400 an ounce after oil's rally appeared to fizzle.

U.S. Treasuries consolidated overnight gains in Asia, with ten-year yields stabilizing near a three-week low. (Editing by Ramya Venugopal; Additional reporting by Umesh Desai, Antoni Slodkowski in TOKYO and Ian Chua in SYDNEY)

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