* Asian stocks rally on hopes U.S. rates remain on hold
* Dollar extends gain, oil slides further
* Bonds firm on economic growth worries, lower oil
By Rafael Nam
HONG KONG, Aug 6 (Reuters) - Asian shares rebounded on
Wednesday from a three-session losing streak on expectations
the U.S. Federal Reserve will not lift interest rates anytime
soon, and as oil prices tumbled to fresh three-month lows.
Exporters such as Japan's Sony Corp <6758.T> were among the
day's leading gainers, benefiting as well from gains in the
dollar, which touched a 7-week high against the yen.
Crude prices <CLc1> continued to recoil, falling below $119
a barrel amid expectations of slowing U.S. demand and after
Tropical Storm Edouard hit the Texas coast without causing any
major disruptions to U.S. energy operations.
European shares were expected to open higher, with
financial stocks also in focus following better-than-expected
earnings reports from BNP Paribas <BNPP.PA> and Commerzbank's
<CBKG.DE> earnings. []
Despite the equities rally, bonds still gained, with
Japanese government bond futures at about a four-month high,
amid concerns about the global economic outlook and as
investors weighed reduced chances for rate hikes.
"The U.S. Fed's dovish interest rate stance cast some
relief over the markets, and coupled with easier oil, is
boosting appetite for shares," said Lee Sun-yeob, a market
analyst at Goodmorning Shinhan Securities in Seoul.
"However we are probably riding on a relief rally today,
which will likely be short-lived. There needs to be fundamental
improvements in the economy (and) U.S. housing markets for a
meaningful rally to take place," he added.
The Fed held rates steady at 2 percent on Tuesday,
expressing concerns about both the slowing economy and the
rising inflation, and indicating it is in no rush to push
borrowing costs higher. []
Asian central banks face a similar dilemma: how to manage
slowing economies at a time of rising food and energy costs,
though the slide in commodity prices may change perceptions.
Indonesia's central bank raised rates by 25 basis points on
Tuesday for the fourth time this year, but the Reserve Bank of
Australia kept rates on hold and signalled an easing in policy
as it focuses more on slowing demand and tight financial
conditions.
The MSCI index of Asian stocks outside Japan
<.MIAPJ0000PUS> gained 2.2 percent as of 0605 GMT, rebounding
after hitting its lowest since March 2007 on Tuesday. It was
also the index's first day of gains after notching three
consecutive days of losses.
Tokyo's Nikkei benchmark <> rose 2.6 percent, powered
by exporters such as Honda Motor Co <7267.T> and Sony as the
weaker yen made their products more competitive globally.
Shares in Australia <> and Taiwan <> gained more
than 3 percent each, while markets in South Korea <> and
India <> gained more than 2 percent each.
Indexes in Singapore <.FTSTI> and Shanghai <> were up
around 1 percent each.
Hong Kong markets <> were closed due to a tropical
storm.
ECB MEETING
The slide in oil prices is benefiting the dollar, which hit
a seven-week high of 108.48 <JPY=> against the yen at one point
on Wednesday, though that marked just a 0.1 percent rise from
U.S. trade.
Lower oil prices have soothed some concerns that high
energy prices will drag heavily on the U.S. economy at a time
when consumer prices are showing an unexpectedly fast rise.
The euro rose 0.3 percent to $1.5495 <EUR=>, after hitting
a seven-week low of $1.5445 on Tuesday, with investors
investors largely on hold for a European Central Bank meeting
on Thursday that is widely expected to keep rates on hold.
[]
"It will be hard to dislodge the dollar from these levels,"
said Junya Tanase, forex strategist at JPMorgan Chase in Japan.
"But note that the dollar's strength is not owed to the
U.S. economy's robustness, but rather due to the fact that
other major economies are faring worse. Solid U.S. macro
fundamentals will be necessary for the dollar to retain
long-term support," he said.
CAUTION REMAINS
Oil prices continued their steep fall from a record above
$147 a barrel set on July 11.
Crude prices <CLc1> were down 56 cents at $118.61 a barrel
after slumping more than $2 on Tuesday to as low as $118, its
weakest since May 5.
But metals prices rebounded from recent multi-month lows,
with gold <XAU=> up more than $2 to around $879.50/880.50 an
ounce and platinum <XPT=> edging up to $1,563.00 after hitting
its lowest since Jan 22 on Tuesday.
Still, regional bonds gained as falling oil prices are
helping ease some expectations of higher interest rates.
Japan's September 10-year futures <2JGBv1> rose as high as
137.40, its highest since April.
"Players see U.S. economic troubles being exported to Japan
and the euro zone, so any rise in Treasuries yields is taken as
a sign that bonds in Japan and the euro zone should be bought,"
said a dealer at a Japanese bank.
