(Updates prices to Tokyo close, adds Europe markets)
By Kevin Plumberg
HONG KONG, May 30 (Reuters) - Asian stocks rose on Friday,
led by exporters in Japan, as fears of a deep U.S. recession
receded, but gains were capped by worries that inflation will
cut into growth and lead to higher borrowing costs.
Despite a $4 drop in oil prices overnight, they have still
risen by a third since 2008 began, sparking concerns that
energy costs will push down consumer spending and business
investment and cause inflation to spiral higher.
"Once inflation exceeds a certain level it does become a
major negative factor for stocks," said Garry Evans,
Asia-Pacific equity strategist with HSBC in Hong Kong.
"Over the coming quarters, we think inflation will become
an increasingly important theme. Investors should avoid
countries where the authorities will have to react drastically,
and look to buy stocks which benefit from rising prices," he
said in a note.
European stocks inched higher, gaining ground for the third
straight session as a drop in oil prices brought some relief to
airline stocks, though it dragged energy shares lower. By 0712
GMT, the FTSEurofirst 300 <> index of top European shares
was up 0.3 percent at 1,334.23 points.
The dollar steadied near three-month highs against the yen
after U.S. economic growth figures were revised upwards
overnight.
The weaker yen helped to boost export stocks with good
brand recognition in overseas markets like Canon Inc <7751.T>,
Sony Corp <6758.T> and Toyota Motor Corp <7203.T>, pushing
Japan's Nikkei share average up 1.5 percent to a four-month
closing high.
A report released on Friday showed consumer inflation eased
in April, though analysts expected price pressures to pick up
in May. For more click on [].
"The biggest factor for the rise is the softer yen, with
bonds being almost flat, while another supporting factor is
expectations for gains in U.S. stocks tonight after Dell's
earnings," said Yutaka Miura, deputy manager of the equity
information department at Shinko Securities.
Dell Inc <DELL.O>, the second-largest personal computer
maker, reported earnings last night after the market closed
that beat expectations, boosting hopes for Asian companies like
Hong Kong-listed Lenovo <0992.HK>.
MSCI's pan-Asian equities index <.MIAS00000PUS> edged up
0.1 percent, led by Japan. However, the index was down 1
percent in May after a steep rebound in April, and has lost
more than 5 percent so far this year.
But the fall in crude and revision to U.S. growth figures
hurt equity markets in Australia and Taiwan, and Asian stocks
excluding Japan <.MIAPJ0000PUS>, gained only 0.1 percent on the
day and down 2.2 percent in May, according to MSCI.
Oil slipped below $126 after its steep overnight drop as
the dollar's rally overshadowed the biggest drop in U.S.
inventories since 2004, while concerns over global energy
demand grew.
U.S. crude <CLc1> was down 77 cents at $125.86 a barrel by
0645 GMT.
U.S. oil demand in March fell to its lowest level for that
month in five years, a fresh signal that consumers are
struggling to cope with high oil prices.
BONDS LICK WOUNDS
In the bond market, month-end portfolio adjustments pushed
up longer-dated maturities, though the two-month long sell-off
on growing confidence the worst of the credit crisis has past
may not have ended just yet.
The benchmark 10-year Japanese government bond yield, which
moves inversely to the price, dipped 5 basis point to 1.740
percent <JP10YTN=JBTC>.
Benchmark 10-year government bond yields in Europe, Japan
and the United States on Wednesday rose to fresh 2008 highs as
investors priced out expectations of looser monetary policy
this year given consumer price pressures that don't appear to
be easing any time soon.
The Lehman Brothers global aggregate fixed income index was
down 1.28 percent in May, following a 1.91 percent decline in
April. Bond markets in the euro zone were the hardest hit,
followed by the United States and then Asia.
High food prices, which have largely contributed to global
consternation over inflation, are expected to remain so in the
next decade despite recent easing, the United Nations food
agency and the OECD said.
In the next 10 years, beef and pork prices are expected to
rise 20 percent compared with the previous decade. Rice is seen
up 30 percent, while vegetable oils are forecast to surge 80
percent or more.
The dollar was down slightly against the yen, after
touching a three-month high on Thursday in the wake of an
upward revision to U.S. gross domestic product growth figures
that bolstered expectations that the Federal Reserve will raise
interest rates later this year to curb inflationary pressures.
The dollar slipped to 105.33 yen <JPY=>. The euro <EUR=>
also trimmed back to $1.5493.
Gold, often used by investors as a hedge against inflation,
also inched lower to $873 an ounce after dropping nearly 3
percent on Thursday.
(Additional reporting by Aiko Hayashi in Tokyo)
(Editing by Jacqueline Wong)
