* Oil is $22 below all-time high
* Asia stocks rally to three-week high
* Long-term views filled with uncertainty
(Repeats to additional subscribers with no change to text)
(Updates prices to Tokyo close, adds BOJ, Europe open)
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
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 bail-out bill
that would extend a potential $25 billion lifeline to the
embattled mortgage lenders Fannie Mae <FNM.N> and Freddie Mac
<FRE.N>.
The fall 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. []
SLOW JAPANESE RECOVERY
Atsushi Mizuno, considered one of the most hawkish members
of the Bank of Japan's policy board, said he was more concerned
about downside risks to the economy than inflation, and said
there was a chance of Japan entering a recession at some point.
"I think there is a possibility that it will take more time
than the BOJ officially says before the Japanese economy will
recover," Mizuno told a news conference.
But he stressed that it was unlikely any recession would be
deep and after his comments, made an hour before the market
close, Japan's Nikkei share average <> added to its gains.
It rose 2.2 percent to its highest close since June 26, led by
sectors most sensitive to fuel prices, such as automakers.
European shares were expected to open lower as investors
settled down to a heavy earnings flurry expected to shed light
on how severely the credit crisis and economic slowdown has hit
corporates. Bookmakers saw Britain's FTSE <> opening down
13-18 points, Germany's DAX <> down 8-12 points, and
France's CAC <> down 9-14 points.
Shares in the Asia-Pacific region excluding Japan
<.MIAPJ0000PUS> edged up 0.8 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 0.6 percent, powered
almost entirely by gains in the financial sector. Lower fuel
prices were certainly a boon to shares of Cathay Pacific
<0293.HK>, which rose 4 percent.
South Korea's KOSPI <> jumped 2.2 percent, led by
shares of Samsung Electronics <005930.KS> on market chatter the
company will announce share buyback plans. The company, which
gained 4.6 percent, will report its results on Friday.
CRUDE REALITIES
Crude prices drifted around $124.40 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 the belief 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 $1.5688 <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, rose 1.5 basis points to 1.655 percent,
away 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.
