* Further rise in oil could hit stocks
* European stocks open higher
* Credit spreads tighten slightly as risk aversion fizzles
By Saikat Chatterjee
HONG KONG, Feb 25 (Reuters) - Oil jumped by more than $2 to
above the $113 per barrel on Friday as another bout of nerves
spread in the market on concerns that spreading unrest in Libya
could hit fuel supplies.
Brent oil had pulled back following a 7 percent
surge to almost $120 on Thursday after rumours that Libyan
leader Muammar Gaddafi had been shot and on Saudi Arabia's
reassurances that it could counter Libyan supply disruptions.
But Saudi reassurances were not enough to calm jittery
markets with analysts predicting that further rise in oil prices
could trigger more selling in stocks and other risky assets.
"When geopolitics in the Middle East are at play in the oil
markets, all conventional bets on the direction of oil prices
based on supply and demand fundamentals, or economic variables,
are off," analysts at BNP Paribas said in a research note.
Stocks recovered smartly on Friday after heavy selling this
week on hopes that a recent surge in prices may have been
overdone, though traders said the situation was still too fluid
to take any aggressive bets.
European shares rose, breaking a five-day falling spree.
Japan's Nikkei average rose for the first time in
four days while Hong Kong's stocks gained, helped by strong
earnings from insurer AIA Group and a rebound in
airline shares.
The MSCI index of Asia-ex Japan stocks was
up more than a percent, though down nearly 3 percent this week.
"Foreign investors are buying back after the Nikkei lost
some 400 points this week, but it's still early days and we need
to wait to see what happens in Libya over the weekend to be able
to say if the correction is already over or not," said Toshiyuki
Kanayama, a market analyst at Monex Inc.
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Technical outlook on oil prices
Story on AIA's earnings
Story on oil prices impact
Column on the euro's strength
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Broader sentiment remained cautious as still- elevated oil
prices could hurt government budgets given widespread fuel price
subsidies in the region apart from negative impacts on
inflation, growth and trade balances.
Since the Libyan crisis erupted, some of the worst
performing markets within Asia are India , Korea
and Taiwan due to their higher dependency on oil
imports, Brown Brothers Harriman said.
FIRM BIAS
Although oil prices have come off 2-1/2 year highs, they are
up more than 12 percent in the past three sessions alone,
raising concerns about a wider slowdown in growth and retaining
a firm bias in the prices of safe haven assets such as gold,
U.S. Treasuries and of late the Swiss franc.
The dollar stayed above a record low against the franc
after suffering heavy losses overnight as investors
sought safety in other currencies, fearing the unrest in Libya
could spread to other oil producers.
It has fallen nearly 4.8 percent against the franc in the
last two weeks, its worst showing since June.
Meanwhile, the euro held near three-week highs, helped by
more hawkish comments from European Central Bank officials with
ECB policymaker Axel Weber saying the only direction for
interest rates to go is up.
Other ECB officials recently talked tough about fighting
inflation, reinforcing market view that the ECB will raise
interest rates before the U.S. Federal Reserve.
With markets continuing to focus on inflation-adjusted
returns, BNP Paribas said, the Fed is seen as least credible
central bank, the ECB as the most credible while the Bank of
England lying somewhere in between.
In credit markets, the benchmark for non-Japan Asia, the
iTraxx investment grade index saw its spreads
tighten by 2 bps to 109.5/111.5 after blowing out to its widest
level in nearly a month this week, traders said.
Gold, another safe-haven, consolidated around $1,400 an
ounce as safe-haven buying dried up after the rally in oil
fizzled.
U.S Treasuries held overnight gains in Asia, with 10-year
yields near a three-week low.
(Additional reporting by Umesh Desai, Antoni Slodkowski in
TOKYO and Ian Chua in SYDNEY)
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