* Oil is $22 below all-time high
* Asia stocks rally to three-week high
* Long-term views filled with uncertainty
(Repeats to more subscribers, updates prices, adds Hong Kong
market)
By Kevin Plumberg
HONG KONG, July 24 (Reuters) - Oil prices fell to a
seven-week low below $125 a barrel on Thursday as U.S. energy
demand was seen reaching a tipping point, sending investors
back into Asian stocks for the fourth consecutive day.
A retreat in oil prices and signs of improved confidence in
the U.S. financial sector also pushed the U.S. dollar to a
one-month high against the yen.
Adding to a sense of short-term relief, U.S. President
George W. Bush dropped a threat to veto a housing-bailout bill
that would extend a potential $25 billion lifeline to the
embattled mortgage lenders Fannie Mae <FNM.N> and Freddie Mac
<FRE.N>.
The drop in oil and the potential housing rescue together
have stopped cold a popular trade in which dealers would
simultaneously bet against the financial sector and put their
money in the energy sector. The unwinding of this trade has
accelerated the upward momentum in equities. []
However, uncertainty loomed as to whether economics were
supporting the global stock market rally, particularly after
data showed Japanese exports fell for the first time in five
years. []
"The fundamental issue is oil, and this is helping the
market become cautiously optimistic," said Koichi Ogawa, chief
portfolio manager at Daiwa SB Investments in Tokyo. "There's a
sense that investors still lack confidence, but the fall in oil
has sparked some buying, and with banks likely having hit
bottom, optimism may grow."
Japan's Nikkei share average <> rose about 1 percent
to its highest level since July 2, led by sectors most
sensitive to fuel prices, such as automakers.
Shares in the Asia-Pacific region excluding Japan
<.MIAPJ0000PUS> edged up 0.6 percent to the highest level in
more than three weeks, having bounced 8 percent from a 16-month
low plumbed last week.
Hong Kong's Hang Seng <> was up a modest 0.2 percent,
powered almost entirely by gains in the financial sector. Lower
fuel prices was certainly a boon to shares of Cathay Pacific
<0293.HK>, which rose 4.2 percent.
South Korea's KOSPI <> jumped 2 percent, led by shares
of Samsung Electronics <005930.KS> on market chatter the
company will announce share buyback plans. The company will
report its results on Friday,
"There is a good chance that Samsung Electronics will
unveil share buyback plans tomorrow, as their share prices have
suffered steep falls during the latest bearish run," said Suh
Do-won, an analyst at Hanwha Securities in Seoul.
CRUDE REALITIES
Crude prices drifted lower to $124.28 a barrel <CLc1>, more
than $22 below the all-time high hit just two weeks ago. A U.S.
government report overnight showed a large buildup in oil
supplies, reinforcing concerns that energy demand is
deteriorating under the weight of an economic slowdown and high
prices.
Lower oil prices have pushed up the U.S. dollar, which has
also benefitted recently from Federal Reserve officials who
have suggested interest rate increases are needed sooner rather
than later to quell inflation.
The dollar hit a one-month high against the yen just below
108 yen <JPY=>. The euro was at $1.5693 <EUR=>, falling further
from its record high above $1.60 reached last week.
"The outlook for the dollar is intertwined with oil
prices," said Ashley Davies, currency strategist with UBS in
Singapore. "The recent weakness in oil could be the result of
declining demand and as such could be more than a dip or at
least a very long, drawn out dip," he said in a note.
Strength in equity markets has been sucking capital out of
major government bond markets, often a place where investors
stash money in times of high volatility.
However, Japanese government bonds recovered after earlier
sliding for a third straight day. A solid auction of 20-year
bonds as well as much lower-than-expected Japanese trade
surplus figure supported prices.
The benchmark 10-year yield <JP10YTN=JBTC>, which moves
inversely to the price, slipped 1.5 basis points to 1.625
percent, though it is still up from a three-month trough of
1.530 percent hit last week.
State Street's ABF pan-Asia bond index fund <2821.HK>, a
barometer of local-currency government and quasi-government
bonds in Asia, has fallen 6 percent since mid April and was
down 0.2 percent on Thursday.
(Additional reporting by Elaine Lies in Tokyo and Park
Jung-youn and Rhee So-eui in Seoul)
(Editing by Kim Coghill)
