(Updates market levels, adds European outlook)
By Kevin Plumberg
HONG KONG, June 9 (Reuters) - Asian stocks fell and
government bonds climbed on Monday after oil prices surged to a
record high of $139 a barrel and data suggested the world's
largest economy is creeping perilously closer to stagflation.
UK and major European stock markets were expected to open
as much as 1 percent lower, according to financial bookmakers,
as high oil prices took their toll on expectations of consumer
demand and business investment.
"The factors depressing the market, namely inflation and
the global economic downturn, are not going to just go away,"
said Lee Young-su, a market analyst at Daewoo Securities in
South Korea.
The U.S. unemployment rate posted its steepest one-month
rise in 22 years, figures on Friday showed, increasing fears of
a replay of the 1970s when a spike in inflation coincided with
a period of stagnant economic growth. []
In their biggest one-day increase ever, oil prices jumped
almost $11 on Friday, sparking the largest single-day selloff
on Wall Street since February 2007 [].
The combination of soaring energy prices and signs of
economic instability overseas hit Asian stock markets, which
were still trying recover from double-digit inflation rates in
some parts of the region.
Japan's Nikkei <> finished 2.1 percent lower, its
largest decline in two weeks, with exporters such as camera
manufacturer Canon Inc <7751.T> and auto maker Honda Motor Co
<7267.T> paving the way lower. Honda lost 3.4 percent while
Canon tumbled 4.4 percent on fears that nervous consumers will
rein in spending.
The MSCI index of Asia-Pacific stocks outside of Japan
<.MIAPJ0000PUS> fell 1.1 percent by mid-afternoon, taking
year-to-date losses to 11.2 percent.
Shares in the tech-heavy TAIEX in Taiwan <> declined
1.8 percent, while Korea's KOSPI <> was down 1.3 percent.
Financial markets in Australia, China, Hong Kong and the
Philippines were closed for public holidays.
OIL SHOCK
U.S. light crude <CLc1> slipped 85 cents to $137.70 on
Monday after it surged $10.75 on Friday on dollar weakness and
tensions in the Middle East after an Israeli minister talked
about a possible attack on Iran, the world's fourth-largest
producer.
Oil has risen about 40 percent since January as funds hedge
against the dollar and some bet that long-term oil supplies
will struggle to keep up with demand in the decades ahead.
"What's driving this ultimately is compound consumption.
You can't put 40 million cars a year on the road and think
we're going to consume less," said Greg Smith, who manages $500
million in futures as the head of fund Global Commodities in
Australia.
Soaring demand for a dwindling supply of oil is at the root
of crude's 125 percent rise since the end of 2006, said Tony
Hayward, chief executive of BP <BP.L>, the third largest
publicly-traded oil company.
"In a well functioning market where supply and demand are
balanced, prices should be stable. Where prices are high,
however, they show that supply is not responding adequately to
rising demand ... and that is where we find ourselves today,"
Hayward told an oil and gas conference in Kuala Lumpur.
At the weekend, key OPEC officials maintained they saw no
need to consider pumping more oil now, despite the surge.
"I think there is enough oil in the market, I did not hear
anybody calling for a meeting," Shokri Ghanem, head of Libya's
National Oil Corporation and the country's top oil official,
told Reuters in an interview. []
INVESTORS FLEE FROM INFLATION
The climb in oil prices has fueled unease among investors
about accelerating inflation across Asia and confounded central
bankers in the region who are struggling to keep prices at bay
without totally snuffing out growth.
China's central bank on Saturday raised the amount lenders
much keep in reserve by a full percentage point, the largest
rise of the year, as policymakers try to stop the flow of
speculative money into the country that could exacerbate an
already high inflation rate. [].
Institutional investors, who have relatively long time
frames and large portfolios, are losing patience with Asia,
where underlying inflation is at its highest since 1991,
according to a report from State Street Global Markets.
Equity capital flows into Asia excluding Japan last month
were a fifth of what they have been over the last 10 years,
while flows into the euro zone are running at close to a record
pace, said State Street, which tracks 15 percent of the world's
tradeable assets.
"Institutional investors are favouring markets where there
are central banks that demonstrate a willingness to tackle
inflation. The road less travelled by is the one where
inflationary risks are most apparent," analysts at State Street
said.
A run to safe-haven assets benefitted Japanese government
bond prices, which rebounded after a selloff on Friday when the
five-year yield rose to a 10-month high a day after the
European Central Bank sent a clear signal that it may raise
interest rates as early as July.
The five-year JGB yield fell 6 basis points to 1.300
percent <JP5YTN=JBTC>, pulling further away from a 10-month
high of 1.395 percent struck on Friday. The 10-year JGB yield
fell 5 basis points to 1.735 <JP10YTN=JBTC>.
"Rather than see the focus shift totally toward concerns
about the economy and see bond yields head lower, I think what
we have now is a more balanced situation," said Tatsuo
Ichikawa, fixed-income strategist for ABN AMRO Securities,
adding that inflation concerns will likely not disappear.
The dollar edged up against the euro and yen after the
broad selloff on Friday.
The euro was down 0.1 percent at $1.5772 <EUR=>, while the
dollar rose 0.3 percent to 105.25 yen <JPY=>.
Gold, often used by investors as a hedge against inflation,
dipped to around $900 an ounce <XAU=> in the spot market after
jumping $4 on Friday.
(Additional reporting by Masayuki Kitano in TOKYO, Park
Jung-youn in SEOUL and Ramthan Hussain in KUALA LUMPUR)
(Editing by Kim Coghill)
