Asian Markets Rally on Easing Inflation Fears

Asian markets rallied Monday after muted U.S. consumer price data and softer oil prices helped ease concerns about inflation and higher interest rates in the world's top economy. Japan closed 2.7 percent higher.

Oil prices eased further below $134 a barrel on Monday as Saudi Arabia prepared to push production to its highest rate in decades to help keep pace with demand and tame what it sees as unacceptably high prices. The fall in crude prices lifted oil sensitive stocks such as South Korea's Korea Air Lines and Japan's All Nippon Airways,  but weighed on energy counters such as Inpex Holdings and Woodside Petroleum.

Along with U.S. inflation data that showed underlying price pressures rose moderately in May, and the biggest weekly rise in the U.S. dollar in three years, the easing in crude prices improved the prospects of some of Asia's well-known exporters such as Canon in Japan and Samsung Electronics in South Korea.

Tokyo's Nikkei 225 Average rose 2.7 percent as exporters such as Kyocera climbed on a weaker yen and after U.S. data eased worries on Wall Street about inflation and a near-term rise in interest rates. Japan's largest auto battery maker GS Yuasa shot up 10.6 percent after the Nikkei business daily reported that its partner in next-generation batteries, Mitsubishi Motors, will tie up with France's PSA Peugeot Citroen on electric vehicles.

South Korea's KOSPI closed stronger, with Korea Air Lines boosted by higher fuel surcharge limits, but STX Corp and its affiliates ate into the session's gains after plunging on the firm's announcement of a new share offering.

Australian shares bucked the upward trend and finished a touch lower as a fall in oil prices hit energy firms such as Woodside Petroleum, offsetting strength in the top miners on firm metals prices.

Hong Kong stocks rose 1.9 percent sending the Hang Seng Index above 23,000 level, led by shares in refiner Sinopec. Sinopec shot up over 6 percent as did subsidiary Sinopec Shanghai Petrochemical. PetroChina and CNOOC also climbed. The rally in oil stocks was also helped after Beijing reiterated a pledge to reform its state-set energy price policy. Mainland refiners have been battered by the growing gap between rising international crude oil prices and the regulated prices of refined products in China.

Singapore's Straits Times Index climbed 2 percent with financials such as United Overseas Bank and DBS Group leading the advancers. Singapore's final unemployment rate stood at 2.0 percent in the first quarter after seasonal adjustments, unchanged from a flash estimate of 2.0 percent, the government said on Monday

China's Shanghai Composite Index closed 0.2 percent higher, with most stocks extending last week's tumble in response to tightening monetary policy. But speculation that domestic fuel prices could soon be raised boosted shares in refiners Sinopec and PetroChina.

© 2008 CNBC.com