* Oil set for biggest first-half rise in 9 years
* Asia stocks set for worst first-half performance in 16
years
* U.S. dollar slips to three-week low vs euro
By Kevin Plumberg
HONG KONG, June 30 (Reuters) - Oil prices rose on Monday on
brewing Middle East tensions, pushing up close to Friday's
record high and underpinning Asian stock markets by lifting
energy shares.
But the record breaking rally in oil prices has made
stagflation -- quickening inflation combined with slowing
economic growth -- a top fear for investors and is propelling
Asian stocks to their worst first-half performance in 16 years.
Persistently high food and energy prices have caught
consumers, policy makers and portfolio managers by surprise
this year as a toxic combination of sluggish global economic
growth and rising inflation hits almost every region of the
world.
The U.S. dollar has mustered only a small gain in the last
three months, so energy markets have taken their cues from an
escalating war of words between Israel and Iran, the world's
fourth-largest oil exporter.
Fears about dwindling oil supply were already heightened
when Libya's most senior oil official said last week he was
studying the possibility of cutting output in response to U.S.
threats to sue OPEC members.
"The U.S. dollar is down and there are many high-level
geopolitical news items, particularly in the Middle East, that
are pushing prices up," said Mark Pervan, a senior commodities
analyst at the Australian & New Zealand Bank in Melbourne.
"Oil is now a very jittery and news-sensitive market that
is running on rumours and concerns of future supply
disruptions."
Japan's Nikkei share average, which earlier this year was
viewed as a relatively safe alternative amid rising global
price pressures, sputtered in June with inflation in the
world's second-largest economy at the highest in a decade and
export demand uncertain.
The index <> rose 0.3 percent on Monday, helped mostly
by energy-related shares, but was set for its biggest
first-half decline since 1995. The index has fallen more than
11 percent since the start of the year.
INVESTORS WEIGH RATE EXPECTATIONS
The MSCI index of shares in the Asia-Pacific region outside
of Japan was up 0.3 percent <.MIAPJ0000PUS>, off a three-month
low plumbed on Friday.
The broader pan-Asia index inched up 0.1 percent. It is
down around 14 percent so far this year, the largest first-half
drop since 1992 when Japan was in a recession.
Hong Kong's Hang Seng index <> rose 0.9 percent in
early trade, as dealers hunted for bargains though declines on
some market's heavyweight's like HSBC <HSBA.L><0005.HK> kept
gains in check.
For fund managers, risk reduction and safety were the
keystones in the first half of the year.
Equity capital outflows from developed markets around the
world rose to $105 billion, almost a staggering ten-fold
increase over 2007 first-half outflows of $11 billion, EPFR
Global, a Boston-based research firm, says.
Emerging market stock funds also registered outflows though
mostly because of a big move out of Asia ex-Japan equity
markets.
First-half outflows from emerging market stock funds
totalled $12 billion, compared with an inflow of $2 billion in
the first six months of 2007.
The U.S. dollar slipped to a three-week low against the
euro, weighed down by expectations the Federal Reserve will be
reluctant to raise interest rates for now given signs of a weak
economic.
In contrast, the European Central Bank is widely expected
to be the first Group of Seven central bank to raise rates when
it meets on Thursday.
The euro rose to a high of $1.5798 <EUR=> in early trading.
The dollar was up 0.2 percent at 106.40 yen <JPY=>.
"The surge in oil prices and the slide in U.S. stocks keep
the dollar's outlook gloomy and make it difficult for the
currency to recover strongly," said a senior dealer at a
European bank.
U.S. light crude for August delivery <CLc1> was up $1.50 at
$141.70 a barrel, slightly below the record high of $142.99
struck on Friday.
Crude has surged 48 percent so far this year, the largest
first-half increase since 1999 even though global growth likely
remains below its long-term trend.
The spot gold price <XAU=> was down 0.1 percent after
hitting a one-month high on Friday. Gold dipped to
$925.90/926.90 an ounce after rising as high as $930.40 last
week.
