* Solid results at U.S. bank Wells Fargo inspire gains
* Oil tumbles to $135 on surprise jump in inventories
* Stagflation lingers: US inflation at highest since Sept
'05
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, July 17 (Reuters) - Asian stocks rebounded on
Thursday, boosted by the biggest surge in U.S. bank shares in
16 years and a decline in oil prices, providing some relief
from fears about the global credit crisis spiralling out of
control.
The dollar, which benefited from the overnight fall in oil
prices, gave up some of its gains on a report that sovereign
wealth funds were seeking to cut their exposure to the U.S.
currency, while government bonds fell as equities gained.
Major European stock markets are expected to open as much
as 1 percent higher, according to financial bookmakers, after
Wells Fargo & Co <WFC.N>, the fifth-biggest U.S. bank, posted
quarterly results well above expectations and raised its
dividend.
Shares of high-profile Asian exporters such as consumer
electronics giant Samsung Electronics <005930.KS> gained as
lower energy prices comforted investors about the outlook for
demand, while shares of Japan's largest bank, Mitsubishi UFJ
Financial Group <8306.T>, rose 3 percent on hopes for the
financial sector.
Upcoming earnings announcements from Wall Street banks
could be a stress test for the current rally, with Merrill
Lynch & Co Inc <MER.N> expected to report later on Thursday its
fourth consecutive quarterly loss and writedowns of up to $6
billion.
"With the subprime problems still out there, it does not
mean a trend change, but we are seeing a short-term rebound led
by recently battered banks and exporters," said Norio Shimura,
deputy head of the equity department at Chuo Securities in
Tokyo.
Japan's Nikkei share average <> rose 1 percent,
posting the biggest daily rise in a month.
Outside of Japan, shares in the Asia-Pacific region
<.MIAPJ0000PUS> climbed 2.2 percent for the largest single-day
increase since April. On Wednesday, the index plumbed its
lowest since March 2007.
Hong Kong's Hang Seng index <> jumped 2.6 percent, led
by gains in global bank HSBC <0005.HK>.
Despite the gains, stock markets globally remain entrenched
in a bear market, with the MSCI all-countries world index
<.MIWD00000PUS> down slightly more than 20 percent from an
all-time high reached in November.
OIL EASES BUT INFLATION REMAINS
Credit Suisse equity strategists have increased their
overweight in U.S. stocks to 10 percent of their model
portfolio, based on the ability of U.S. companies to cut costs
more quickly than in Europe or Japan. They have also increased
their holdings of UK and Japanese stocks, having cut their
exposure to emerging markets and continental Europe, though the
allocations are tactical.
"Ironically, we find reasons to sell nearly all the
regions," they said in a research note.
Crude prices were stable around $135 a barrel <CLc1>,
having fallen 6.9 percent so far this week on the view that
demand from the United States, the top consumer nation, would
continue to decline as a result of high energy costs.
But oil is still up 41 percent so far this year,
confounding policymakers trying to bolster growth and shield
their economies from turmoil in financial markets.
Soaring energy prices were the biggest factor in speeding
up U.S. consumer inflation to the quickest since September
2005, while China confirmed inflation pressures remained high
despite its economy slowing in the second quarter.
[] and []
The U.S. dollar was under some pressure, after a report in
the Financial Times highlighted sovereign wealth funds' gradual
shift away from dollar-denominated assets. []
In addition, though the financial sector was jolted higher
on signs of resilience at some banks, fears that the U.S.
government may have to take over the struggling top mortgage
finance companies, Fannie Mae <FNM.N> and Freddie Mac <FRE.N>,
continue to cast a pall of uncertainty over markets.
"Looking beyond the rally in the dollar last night, we
think the developments concerning Freddie Mac and Fannie Mae
warrant the dollar trading in a lower trading range for now,"
said Ashley Davies, currency strategist with UBS in Singapore.
The euro was at $1.5860 <EUR=>, up 0.2 percent and about
two cents below an all-time high hit on Tuesday. Against the
yen, the dollar was at 104.98 yen <JPY=>, nearly unchanged on
the day.
Japanese government bond yields, which move in the opposite
direction of prices, ticked higher after an overnight rise in
U.S. Treasury yields and a rally in equity markets prompted
investors to shift money to stocks from bonds.
The benchmark 10-year Japanese government bond yield rose
1.5 basis points to 1.58 percent <JP10YTN=JBTC>, though it is
down more than 25 basis points since mid June.
(Additional reporting by Taiga Uranaka in TOKYO; Editing by
Lincoln Feast)
