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Asian Markets Rally on Easing Oil Prices

CNBC.com
Wednesday, 23 Jul 2008 | 6:45 AM ET

Asian markets strengthened Wednesday, as a drop in oil prices boosted cost-sensitive transport and consumer stocks, while a rise in the U.S. dollar lifted exporters. Both South Korea and Australia climbed 2 percent.

Oil prices fell by over $3 a barrel to a six-week low on Tuesday amid concerns over sliding U.S. energy demand and expectations a hurricane pushing through the Gulf of Mexico would spare most offshore oil production. Oil is currently trading below the $128 level in the Asian session.

The U.S. dollar rallied on Tuesday, boosted by a steep drop in oil prices and comments from a Federal Reserve official suggesting U.S. interest rates might have to rise even before financial
markets recover.

Japan's Nikkei 225 Average finished 1 percent higher, with property firms Mitsubishi Estate and Mitsui Fudosan jumping after JPMorgan initiated coverage of them with an "overweight" rating. Japan's second-largest bank Mizuho Financial Group and its rivals extended gains on relief that major U.S. bank results were now over, with most not as dire as investors had feared.

Seoul shares closed almost 2 percent higher led by construction issues such as Hyundai Engineering, which surged on hopes of positive regulatory changes, while easier oil helped lift battered financials.

Australian shares rose 2 percent to a three-week high as the drop in oil prices bolstered investor sentiment, lifting consumer-related firms and banks such as National Australia Bank.
Sentiment in the banking sector was also buoyed by a string of stronger-than-expected earnings at major U.S. banks.

Hong Kong shares were up 2.7 percent, with the Hang Seng Index above the 23,000 mark for the first time in nearly five weeks, as lower oil prices eased concern over the impact of high energy costs on businesses and consumers. Airline stocks soared on the prospects of cheaper jet fuel and speculation of consolidation in the aviation industry after a report in a major business magazine said government officials were considering a merger between China Eastern Airlines and Shanghai Airlines. Stocks of both companies shot higher after Caijing magazine reported China's central government and Shanghai's city government are discussing the possibility of merging the carriers.

Singapore's Straits Times Index climbed 3.1 percent. Shares of Neptune Orient Lines rose, recovering from Tuesday's loss on news the firm had submitted a bid for Germany's Hapag-Lloyd that could be worth as much as $7 billion. The city state's annual inflation held at 7.5 percent in June, below expectations but still hovering at a 26-year high, on a rise in housing and food costs.

China's Shanghai Composite Index ended 0.3 percent lower, with declines led by coal and non-ferrous metals producers. However airline stocks gained, partly because of speculation about merger activity in the industry.