* Nikkei on fire, Asia stocks elsewhere down slightly
* Some see Asian emerging markets' comeback
* Eyes on BoE inflation report
By Ian Chua and Ayai Tomisawa
SYDNEY/TOKYO, Feb 16 (REUTERS) - Sterling rose in Asia on
Wednesday as accelerating inflation in Britain cemented
expectations of an early interest rate rise, while a weaker
yen helped to send Japanese stocks to their highest level since
May.
Shares elsewhere in Asia fell slightly
and U.S. oil prices recovered to nearly $85 a barrel partly due
to a surprise drop in weekly crude stocks.
Stocks in emerging markets in Asia have underperformed
those in developed countries this year. Underscoring that trend,
MSCI's Japan share index has risen around 7.5
percent this year, compared with a drop of more than 2 percent
in MSCI's Asia Pacific share index excluding Japan.
But some analysts remain sceptical that such a trend
will continue for long.
Rodrigo Zorrilla, head of markets Asia-Pacific,
Citigroup, said some $10 billion of funds had moved from
emerging market dedicated funds to the United States during the
first two weeks of February.
"The question everybody is asking is whether that is
the reversal of a trend of the bullish emerging market story or
is that just a rebalancing of portfolio," Zorrilla said, adding
that he supported the second view.
"We think the fundamentals are still very strong in
Asia. And while there are some scares in the market relating to
the political issues in the Middle East and inflation concerns
around the world, as soon as the dust settles we will see that
trend (of outflows) to slow down and stop."
INFLATION REPORT EYED
Sterling rallied to a 5-1/2 month peak against a
currency basket after data on Tuesday showed inflation in
Britain jumped to 4 percent, twice the Bank of England's target,
prompting Governor Mervyn King to acknowledge that rates might
rise more rapidly than economists had expected.
Analysts now expect a rate rise in May and the next market
focus is the BoE's inflation report due at 1030 GMT.
Yuuki Sakasai, a strategist at Barclays Capital, said
the inflation report would support King's comments overnight
that suggested an early rate increase.
"But we do think that King is likely to use his news
conference later on to warn against aggressively pricing in rate
hikes. So the pound could gain on the report and fall on King's
comments. On the whole we think risk is skewed to the downside,"
he said, adding that the pound could fall to around $1.60.
Sterling last traded at around $1.6150 ,
compared with a high of $1.6170 overnight. The pound
has gained some 3 percent against the U.S. dollar so far this
year .
The euro edged up against the dollar, standing at around
$1.3520 as of 0544 GMT.
Against the yen, the dollar last traded at around
83.75 , not far from an eight-week high of around 83.90
yen hit the previous day, helped by the recent rise in
U.S. Treasury yields.
Japan's benchmark Nikkei average extended gains and
rose to a nine-month high as a softer yen lifted
exporters. It closed up 0.57 percent at 10,808.29. A
weaker yen makes Japanese exports cheaper and boosts company
profits.
"It's a weaker yen that's lifting sentiment, but foreign
investors are also picking up domestic-demand stocks," said
Shinichiro Matsushita, a market analyst at Daiwa Securities,
adding that financials were attracting foreign interest due to
the Nikkei's strong performance.
The index has gained some 18 percent since November
when foreigners began snapping up lagging Tokyo stocks, helped
by a shift in market focus to developed economies from emerging
ones.
High trade volumes also lifted the mood. The Tokyo stock
exchange's first section has seen more than 2.0 billion shares
change hands for seven consecutive sessions.
MSCI's Asia Pacific share index excluding Japan
was down 0.13 percent, while Hong Kong
stocks rose 0.6 percent, recovering from the previous
session's 1 percent dip as investors sought bargains among
heavy-weighted financials.
The Korea Composite Stock Price Index (KOSPI)
fell 0.9 percent. The Shanghai Composite
, which rallied earlier this week on hopes for
milder inflation in China, was up 0.5 percent as of 0548
GMT.
In Australia, BHP Billiton , the world's
biggest miner, said it planned to pour $80 billion into
expansions over the next five years and return cash to investors
rather than chase ambitious takeovers, after nearly doubling its
first-half profit to a record.
After having rallied 9 percent to a 33-month high in recent
weeks, shares of the market leader BHP fell 1.6
percent after posting results. But Australia's benchmark
S&P/ASX 200 index was little changed as banking shares
weighed on the broader market.
U.S. crude for March delivery gained 0.25
percent to $84.56 a barrel by 0550 GMT, while brent crude
for April delivery rebounded to near $102 a barrel,
underpinned by continued protests in the Middle East.
(Additonal reporting by Hideyuki Sano in Tokyo and Masayuki
Kitano and Saeed Hasan in Singapore; Writing by Yoko Nishikawa;
Editing by Nick Macfie)
