Asian stocks drop as oil slide raises fears

HONG KONG: Asian stocks fell to their lowest level in more than a year on Tuesday as shares in resource firms such as BHP Billiton were pummeled by a slump in oil and metals prices to multi-month lows. Oil hovered just above a three-month low on signs of declining U.S. fuel demand, helping to lift the dollar to a seven-week high against a basket of major currencies.

But the steep decline in crude prices to $120 from a record high above $147 in mid-July is worrying some investors in Asia who had at first cheered the benefits in a region where countries are grappling with double-digit inflation. Instead, the commodity declines are now reinforcing fears of a slowing global economy, one year after a downturn in the U.S. subprime mortgage market helped spark a financial crisis still reverberating around the world.

European shares were set for a mixed open, as the focus shifted towards a Federal Reserve meeting later on Tuesday. The U.S. central bank is expected to leave U.S. interest rates unchanged, partly due to easing energy prices.

"At the moment, people are taking the view that the glass is half-empty, rather than half-full," said Greg Goodsell, equity strategist at ABN AMRO in Sydney.

"Rather than looking at the positive side, that weaker commodities take the pressure off inflation, people are seeing it as a product of slower growth." The declines in resource firms, combined with the concerns over the global economy, brought the MSCI index of Asian stocks outside Japan at one point to its lowest level since March 2007, before it pared some of the losses. The index was down 1.8 percent as of 0600 GMT. U.S. crude futures were down $1.23 at $120.18 at 0600 GMT.

A survey on Monday showed OPEC oil supply rose for a third consecutive month in July due to higher output from the world's top exporter Saudi Arabia and smaller increases from other members.

The falls in crude prices came even as Tropical Storm Edouard churns across the Gulf of Mexico, with forecasters expecting it will likely hit the Texas coast, a major U.S. oil and gas centre, with near-hurricane strength.

But energy companies have so far reported few production slowdowns, easing some of the concerns. Metal prices also slumped. Spot platinum dropped to as low as $1,530.00 an ounce, its weakest in more than six months, from $1,551/$1,571 late in New York on Monday, on fears of falling demand from struggling global auto makers. Gold edged down about $4 to $890.95/892.00 an ounce.

COMMODITY SHARES SLUMP

The falling prices of oil and metals dented commodity shares in Asia, with Australian resource firm BHP Billiton Ltd losing 6 percent and Hong Kong-listed oil offshore producer CNOOC down 5.4 percent.

"Global slowdown worries have prompted an unwinding in the commodities market, which in turn has spurred a sell-off in commodity-linked stocks," said Steven Leung, director with UOB Kay Hian in Hong Kong. "If the U.S. dollar continues to advance we will see commodity stocks taking further hits in the short term."

The resource-heavy Australian index fell 1.4 per cent, while the Hong Kong and Taiwan indexes dropped more than 2 per cent each. Tokyo's Nikkei average swung between gains and losses, to end down 0.1 percent.

Falls in commodity-related shares were offset by gains in exporters such as Honda Motor which benefit from a weaker Japanese yen.

The dollar benefitted as investors sold other major currencies against the U.S. unit given expectations that other economies are also slowing. The dollar index, which measures the U.S. currency's performance against a basket of six currencies, rose 0.3 percent to 73.685 and reached as high as 73.699, the highest since mid-June.

The Australian dollar extended its slide, striking a four-month low of $0.9234 against the U.S. currency, after the central bank on Tuesday left the door open for the first cut in interest rates in seven years, that some investors believe could come as soon as September.
thanks to :- economictimes.indiatimes.com