* Oil is $22 below all-time high
* Asia stocks rally to three-week high
* Long-term outlook filled with uncertainty
By Kevin Plumberg
HONG KONG, July 24 (Reuters) - Oil prices fell to a
seven-week low below $125 a barrel on Thursday amid a view U.S.
energy demand has reached a tipping point, sending investors
back into Asian stocks for the fourth consecutive day.
A retreat in oil prices and signs of improved confidence in
the U.S. financial sector pushed the dollar to a one-month high
against the yen.
Adding to a sense of short-term relief, U.S. President
George W. Bush dropped a threat to veto a housing-bailout bill
that would extend a lifeline to the embattled mortgage lenders
Fannie Mae <FNM.N> and Freddie Mac <FRE.N>.
The drop in oil and the potential housing rescue together
have stopped cold a popular trade in which dealers would
simultaneously bet against the financial sector and put their
money in the energy sector. The unwinding of this trade has
accelerated the upward momentum in equities. []
However, uncertainty loomed as to whether economics were
supporting the global stock market rally, particularly after
data showed Japanese exports fell for the first time in five
years. []
"There's certainly some relief now regarding Freddie Mac
and Fannie Mae, but this is mainly just over the short term,"
said Yutaka Miura, a senior technical analyst at Shinko
Securities in Tokyo. "A comprehensive solution hasn't yet been
found, and this will lead to uncertainty over the longer term."
Japan's Nikkei share average <> rose about 1.3 percent
to its highest level since July 2, led by sectors most
sensitive to fuel prices, such as automakers.
Shares in the Asia-Pacific region excluding Japan
<.MIAPJ0000PUS> edged up 0.6 percent on the day to the highest
level in more than three weeks, having climbed almost 8 percent
from a 16-month low plumbed last week.
South Korea's KOSPI <> jumped 2 percent, led by shares
of Samsung Electronics Ltd <005930.KS>, which is due to report
results on Friday.
Crude prices were trading around $124.30 a barrel <CLc1>,
more than $22 below the all-time high hit two weeks ago. A U.S.
government report overnight showed a large buildup in oil
supplies, reinforcing concerns that energy demand is
deteriorating under the weight of an economic slowdown and high
prices.
Lower oil prices have pushed up the U.S. dollar, which has
also benefitted recently from comments from Federal Reserve
officials suggesting interest rate increases are needed sooner
rather than later to quell inflation.
The dollar hit a one-month high against the yen just below
108 yen <JPY=>. The euro was at $1.5680 <EUR=>, falling further
from its record high above $1.60 reached last week.
"The outlook for the dollar is intertwined with oil
prices," said Ashley Davies, currency strategist with UBS in
Singapore. "The recent weakness in oil could be the result of
declining demand and as such could be more than a dip or at
least a very long, drawn out dip," he said in a note.
Strength in equity markets continues to pull capital out of
major government bond markets, often a place where investors
stash money in times of high volatility.
Japanese government bonds slid for a third straight day,
though the Japanese trade data curbed deeper losses. The
benchmark 10-year yield <JP10YTN=JBTC>, which moves inversely
to the price, rose 2.5 basis points to 1.665 percent, having
climbed from a three-month trough of 1.530 percent last week.
Activity was subdued as investors were cautious ahead of
the Ministry of Finance's 800 billion yen ($7.4 billion)
auction of 20-year bonds later in the day.
State Street's ABF pan-Asia bond index fund <2821.HK>, a
barometer of local-currency government and quasi-government
bonds in Asia, has fallen 6 percent since mid April.
