* Lower oil eases cost burdens
* More earnings eyed after U.S. banks
* Strong U.S. dollar "really very important" - Paulson
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, July 23 (Reuters) - Oil prices extended losses
on Wednesday on fears of waning energy demand, buoying Asian
stocks and weighing on bond markets as investors searched for
higher returns.
European stock markets latched on to the rally and opened
more than 1 percent higher.
The dollar held gains made the previous session after top
U.S. officials, including Treasury Secretary Henry Paulson,
gave it a verbal lift.
Crude oil futures <CLc1> fell 0.5 percent to $127.75 a
barrel <CLc1> after having closed on Tuesday at the lowest
since June 5 on worries that record oil prices were stunting
economic growth.
Oil prices have tumbled some $20 since hitting an all-time
high just two weeks ago, easing immediate concerns about the
burden of high energy costs, though soft consumer demand
continues to be a worry.
On the earnings front, with the results from some Wall
Street banks not as dire as analysts had predicted, investors
broadened their focus to other sectors, with announcements on
Friday expected from Samsung Electronics Co Ltd <005930.KS> and
Honda Motor Co <7267.T>.
"We're just seeing a temporary bright patch," said Yoku
Ihara, manager of the investment information department at
Retela Crea Securities in Japan. "It's still far too early to
let down our guard."
Japan's Nikkei share average <> rose 1 percent to the
highest in two weeks. The Nikkei had back-to-back gains of at
least 1 percent for the first time since April.
Outside of Japan, shares in the Asia-Pacific region
<.MIAPJ0000PUS> climbed 2.2 percent to the highest in three
weeks, according to an MSCI index.
Hong Kong's Hang Seng <> rose 1.9 percent to a
one-month high.
Despite investors' increasing willingness to buy riskier
assets lately, high inflation continues to stalk Asian markets.
The combination of rising price pressures and slowing
growth was a big factor in the nearly $4 trillion in market
capitalisation that has evaporated since November, Morgan
Stanley said.
Underlying inflation in Australia was at the highest in
almost 17 years in the second quarter, suggesting the central
bank may have to keep interest rates where they are despite
threats to growth. []
Consumer prices in Vietnam, whose stock market is one of
the worst performers this year, are expected to rise 25 percent
this year, double last year's pace, with the country seen
running an $18.8 billion trade shortfall, a state-run newspaper
said.
VALUATIONS PROVIDE SUPPORT
JPMorgan slashed its 2008 targets for Asia-Pacific stock
markets across the board on Wednesday by an average of 13.5
percent, though it still was looking for double-digit 12-month
returns from every country in the region, excluding Japan.
Cheap valuations will likely support equity prices over the
next year, with top three most inexpensive markets tracked by
JPMorgan's valuation model -- Taiwan, Phillipines, Australia --
located in Asia, the bank said.
"The consensus return-on-equity forecasts for the next
three years are much higher than the historic average for each
market," said Adrian Mowat, JPMorgan's chief equity strategist
for emerging markets and Asia Pacific.
"While this indicates a high degree of optimism it can also
be argued that this suggests that the risks to valuations are
on the upside," he said in a note.
Yields on safe-haven government bonds, which move inversely
to prices, edged higher as the MSCI all-country world equities
index <.MIWD00000PUS> appeared poised for a sixth straight day
of gains, the longest string since May.
The benchmark 10-year U.S. Treasury yield <US10YT=RR>
ticked up to 4.11 percent, up two basis points from late
Tuesday in New York and 9 basis points higher on the year.
The 10-year Japanese government bond yield <JP10YTN=JBTC>
rose 3.5 basis points to 1.645 percent.
The U.S. dollar stayed firm, holding much of the ground
gained against the euro and yen the previous day after Paulson
said a strong dollar was "really very important," a variation
on his usual comments about the currency.
"The dollar broke through some key levels and has upside
momentum," said Motonari Ogawa, director of forex trading at
Barclays Bank in Tokyo. "But Japanese exporter selling could
emerge at these levels, and it won't be a one-way rise for the
dollar," said Ogawa.
The dollar rose 0.4 percent at 107.67 yen <JPY=>. The euro
slipped 0.1 percent to $1.5775 <EUR=> and up 0.3 percent
against the yen at 169.85 <EURJPY=R>, not far from a record
high 169.91 yen hit on Monday.
(Additional reporting by Elaine Lies and Shinichi Saoshiro in
TOKYO)
(Editing by Kim Coghill)
