(Updates prices, adds comments)
By Kevin Plumberg
HONG KONG, June 9 (Reuters) - Asian stocks fell sharply and
government bonds climbed on Monday, after oil prices surged to
a record high of $139 a barrel and data suggested the world's
largest economy is creeping perilously closer to stagflation.
The U.S. unemployment rate posted its steepest one-month
rise in 22 years, figures on Friday showed, increasing fears of
a replay of the 1970s when a spike in inflation coincided with
a period of stagnant economic growth. []
In their biggest one-day jump every, oil prices jumped $11
on Friday, sparking the largest single-day selloff on Wall
Street since February 2007 [].
The combination of soaring energy prices and signs of
economic instability overseas hit of Asian stock markets, which
were still trying recover from double-digit inflation rates in
some parts of the region.
"The factors depressing the market, namely inflation and
the global economic downturn, are not going to just go away,"
said Lee Young-su, a market analyst at Daewoo Securities in
South Korea.
By 0240 GMT, Japan's Nikkei <> was 2.1 percent lower,
on track for its largest single-day decline in two weeks, with
exporters like camera manufacturer Canon Inc <7751.T> and auto
maker Honda Motor Co <7267.T> paving the way lower.
MSCI's index of other Asia-Pacific stocks <.MIAPJ0000PUS>
was down 0.8 percent, taking year-to-date losses to 11 percent.
Shares in the tech-heavy TAIEX in Taiwan <> declined
2.1 percent, while Korea's KOSPI <> was down 1.8 percent.
Financial markets in Australia, Hong Kong and the
Philippines were closed for public holidays.
OIL SHOCK
U.S. light crude <CLc1> slipped $1.20 to $137.34 on Monday
after it surged $10.75 on Friday on dollar weakness and
tensions in the Middle East after an Israeli minister talked
about a possible attack on Iran, the world's fourth-largest
producer.
Oil has risen about 40 percent since January as funds hedge
against the dollar and some bet that long-term oil supplies
will struggle to keep up with demand in the decades ahead.
"What's driving this ultimately is compound consumption.
You can't put 40 million cars a year on the road and think
we're going to consume less," said Greg Smith, who manages $500
million in futures as the head of fund Global Commodities in
Australia.
At the weekend, key OPEC officials maintained they saw no
need to consider pumping more oil now, despite the surge.
"I think there is enough oil in the market, I did not hear
anybody calling for a meeting," Shokri Ghanem, head of Libya's
National Oil Corporation and the country's top oil official,
told Reuters in an interview. []
INVESTORS FLEE FROM INFLATION
The climb in oil prices has fueled unease among investors
about the breakout of inflation across emerging Asia and
confounded central bankers in the region who are struggling to
keep prices at bay without totally snuffing out growth.
China's central bank on Saturday raised the amount lenders
much keep in reserve by a full percentage point, the largest
rise of the year, as policymakers try to put a plug on flood of
speculative money that could exacerbate an already high
inflation rate. [].
Institutional investors, who have relatively long time
frames and large portfolios, are losing patience with Asia,
where underlying inflation is at its highest since 1991,
according to a report from State Street Global Markets.
Equity capital flows into Asia outside of Japan last month
were a fifth of what they have been over the last 10 years,
while flows into the euro zone are running at close to a record
pace, said State Street, which tracks 15 percent of the world's
tradeable assets.
"Institutional investors are favouring markets where there
are central banks that demonstrate a willingness to tackle
inflation. The road less travelled by is the one where
inflationary risks are most apparent," analysts at State Street
said.
A run to safe-haven assets benefitted Japanese government
bond prices, which rebounded after a selloff on Friday when the
five-year yield rose to a 10-month high a day after the
European Central Bank sent a clear signal that it may raise
interest rates as early as July.
The five-year JGB yield fell 6 basis points to 1.300
percent <JP5YTN=JBTC>, pulling further away from a 10-month
high of 1.395 percent struck on Friday. The 10-year JGB yield
fell 5 basis points to 1.735 <JP10YTN=JBTC>.
"Rather than see the focus shift totally toward concerns
about the economy and see bond yields head lower, I think what
we have now is a more balanced situation," said Tatsuo
Ichikawa, fixed-income strategist for ABN AMRO Securities,
adding that inflation concerns will likely not disappear.
The dollar edged up against the euro and yen after the
broad selloff on Friday.
The euro was down 0.1 percent at $1.5772 <EUR=>, while the
dollar rose 0.3 percent to 105.25 yen <JPY=>.
Gold, often used by investors as a hedge against inflation,
dipped just below $900 an ounce <XAU=> in the spot market after
jumping $4 on Friday.
(Additional reporting by Masayuki Kitano in TOKYO and Park
Jung-youn in SEOUL; Editing by Lincoln Feast)
