* Asian stocks rally on hopes U.S. rates to remain on hold
* Dollar extends gain, oil slides further
* Bonds firm, indicating continued risk aversion
By Rafael Nam
HONG KONG, Aug 6 (Reuters) - Asian shares rallied on
Wednesday, ending a three-session losing streak, led by
exporters on expectations the U.S. Federal Reserve will not
lift interest rates anytime soon.
Exporters also benefited from gains in the dollar. The U.S.
currency touched a 7-week high against the yen as sliding oil
prices eased concerns that higher energy costs will adversely
impact the world's largest economy.
Crude prices <CLc1> dropped further below $120 a barrel
after Tropical Storm Edouard hit the Texas coast without
causing any major disruption to U.S. energy operations.
But investors still held to some of their safe bond
holdings, in a sign of lingering caution. Japanese government
bond futures hit a 4-month high amid worries about the outlook
for the world's second-largest economy.
"The scene was set for today with the fall in oil-inspired
rally in the U.S. and the Federal Reserve retaining a neutral
stance," said Stuart Smith, a private client adviser at Bell
Potter Securities in Australia.
The Fed held rates steady at 2 percent on Tuesday,
expressing concerns about both economic growth and inflation
and indicating it is in no rush to push borrowing costs higher.
[]
It is expected to hold rates steady for the rest of the
year as concerns about the U.S. economy trump fears about
rising inflation, according to a Reuters poll. []
Several Asian central banks face a similar dilemma: how to
manage slowing economic growth at a time of rising inflationary
pressures, though the recent slide in commodity prices may
change perceptions.
Indonesia's central bank raised rates by 25 basis points on
Tuesday, the fourth hike this year, though economists say the
tightening campaign may be over in the next few months.
[]
The MSCI index of Asian stocks outside Japan
<.MIAPJ0000PUS> gained 1.6 percent, rebounding after hitting
its lowest since March 2007 on Tuesday. It was also the index's
first day of gains after notching three consecutive days of
losses.
Tokyo's Nikkei benchmark <> rose 2.2 percent, powered
by exporters such as Honda Motor Co <7267.T> and Canon Inc
<7751.T>. Shares in Australia <>, South Korea <> and
Taiwan <> also climbed 2 percent or more.
CAUTION REMAINS
The slide in oil prices is benefiting the dollar, which hit
a 7-week high of 108.48 <JPY=> against the yen, though that
marked just a 0.1 percent rise from U.S. trade.
Lower oil prices have soothed concerns that high energy
prices will remain a drag on the U.S. economy at a time when
consumer prices are showing an unexpectedly fast rise.
The euro was little changed at about $1.5470 <EUR=>, as
investors wait for a European Central Bank meeting on Thursday
that is widely expected to keep rates on hold. []
Oil prices, undermined by expectations for slowing global
demand, continued a steep fall from a record above $147 a
barrel set on July 11. Crude prices <CLc1> were last down 43
cents at $118.74 a barrel after slumping more than $2 on
Tuesday to as low as $118, its weakest since May 5.
But metals prices rebounded from recent multi-month lows,
with gold <XAU=> up more than $2 to around $880 an ounce and
platinum <XPT=> edging up to $1,564.50 after hitting its lowest
since Jan 22 on Tuesday.
Despite the equity market rally, regional bonds rose in an
indication of the continued risk aversion.
Japan's September 10-year futures <2JGBv1> rose as high as
137.05, its highest since late April.
