global markets-oil rally saps asian stocks
May 25, 2004 3:09am ET (Reuters)
By Christopher Kaufman
SINGAPORE, May 25 (Reuters) - U.S. crude oil prices retreated from close to 21-year highs, but Asian stocks fell and the dollar drifted on Tuesday as investors bet that a Saudi Arabian plan to increase oil output would not solve supply problems.
Heavily oil-dependent Japan and South Korea saw the biggest falls. Tokyo's Nikkei 225 sank 1.3 percent, led by banks , which were down 2.5 percent, and insurers , which lost 3.9 percent.
South Korea's KOSPI dropped two percent, following a 3.7 percent slide in the market's biggest stock, Samsung Electronics . An MSCI index of non-Japan Asian markets was off 0.9 percent.
"The market is lacking energy," said Tetsuya Ishijima, senior investment strategist at Okasan Securities. "The main reason is that the recent rise in oil prices is weighing on the economic prospects of both Japan and the United States."
NYMEX July crude was at $41.60 per barrel by 0700 GMT, $0.12 below where it settled in U.S. trade. The late-U.S. level of $41.72 represented a jump of $1.79, or 4.5 percent, on the day, during which it hit a session high of $41.83, just two cents below the record $41.85 struck on May 17.
Last weekend, Saudi Arabia said it would raise output by 10 percent and called on fellow OPEC members to raise the group's production quota by as much as 11 percent. Other members of the oil producing cartel said a decision would not be reached until a June 3 meeting in Beirut.
The dollar softened against most European currencies but recovered slightly against the yen.
Many analysts argue the dollar is most vulnerable among major currencies, given that the United States is the world's largest consumer of energy and high oil prices could rein in U.S. consumer spending.
At 0630 GMT, the euro was fetching $1.2036 , up 0.2 percent from its overnight price. The dollar was trading around 112.95 yen , near the late New York level on Monday.
Financial bookmakers in London expected Britain's FTSE 100 to open three points higher, with Germany's DAX index opening unchanged and France's CAC-40 starting flat to five points higher.
BONDS IN FAVOUR
Japanese government bond (JGB) prices rose after a solid auction result for 20-year JGBs, underlining investor appetite for paper with a high coupon.
A government auction of 600 billion yen ($5.3 billion) in 2.1 percent 20-year bonds produced a better-than-expected lowest accepted price of 99.60.
The benchmark 10-year JGB yield was down 2.5 basis points at 1.455 percent after the auction results were announced while the benchmark 20-year JGB yield was down six basis points at 2.045 percent.
Top U.S. stocks were mixed on Monday. The Dow Jones industrial average lost 0.08 percent to 9,958.43. The Nasdaq Composite Index added 0.57 percent to 1,922.98.
Cautious investors turned to safe-haven Treasuries, pushing the yield on the benchmark 10-year Treasury note down two ticks to 4.74 percent.
Gold traded in a narrow range in Asia, with spot gold quoted at around $387 an ounce.
