Asian Stocks Pare Gains on Iran Missile Report

Asian markets pared back gains Wednesday, on news that Iran has test-fired missiles. The report, which came in the afternoon, prompted many investors to lock in profits, sending South Korea down almost 1 percent and taking back most of the Nikkei's earlier gains.

Iran test fired nine long- and medium-range missiles on Wednesday, state media said, including one which it has said could reach Israel and U.S. bases in the region. The tests occurred at a time of increased tension between Iran and Israel over Tehran's nuclear program. Oil prices tumbled more than $5 in New York trade Tuesday, but rose in the Asian session Wednesday towards $137 a barrel.

Japan's Nikkei 225 Average finished 0.2 percent higher as the Iranian news raised fears about a jump in oil prices on heightened tensions in the region. The Japanese stock market sharply rose in the morning, led by financial shares such as Mitsubishi UFJ Financial Group, after comments from the U.S. Federal Reserve helped eased credit worries.

South Korea's KOSPI dropped almost 1 percent to a new 14-month low after gaining as much as 1.5 percent earlier in the session, after reports of Iran's missile test fueled oil supply worries while strong gains in the local currency weighed on exporters.

Australian shares rose 2 percent as comments from the U.S. Federal Reserve helped calm credit market worries, boosting financial firms such as Macquarie Group. A steep fall in oil prices soothed concerns about consumer spending, further lifting sentiment.

Hong Kong shares rebounded 2.8 percent, recovering from the previous session's steep losses. Retreating oil prices sent airline shares soaring, with Cathay Pacific gaining 4.9 percent and Air China also gaining.

Singapore's Straits Times Index closed 1.1 percent higher, with shares of Li Heng Chemical surging as much as 6.9 percent after UOB Kay Hian initiated coverage of the stock with a "buy" rating.

Chinese stocks climbed 3.8 percent, with China Life Insurance jumping its 10 percent daily limit, as investors were encouraged by stronger overseas share markets and a sharp drop of global oil prices. Speculation that China may shift monetary policy somewhat towards supporting growth from fighting inflation also lifted shares.

© 2008 CNBC.com