HONG KONG -- Oil prices Wednesday slipped $20 below an all-time high hit two weeks ago, helping to lift Asian stocks and weigh on government bonds as investors cautiously reached for higher returns as well as more risk.
Crude was trading around $128.38 a barrel after having closed Tuesday at its lowest since June 5 partly on fears about waning US demand. That helped ease immediate concerns about high energy costs, though soft consumer demand continues to be a worry.
On the earnings front, results from some Wall Street banks were not as dire as analysts had predicted. Investors then broadened their focus to other sectors, with announcements on Friday expected from Samsung Electronics Co. Ltd. and Honda Motor Co.
"We're just seeing a temporary bright patch," said Yoku Ihara, manager of the investment information department at Retela Crea Securities. "It's still far too early to let down our guard."
Japan's Nikkei share average rose 1.3 percent to the highest in two weeks. If the index keeps its gains on the day, it will be the first time since April that the Nikkei has had back-to-back gains of at least 1.0 percent.
Outside of Japan, shares in the Asia-Pacific region climbed 1.0 percent to the highest in three weeks.
South Korea's KOSPI was up 1.6 percent, led by gains in the world's fourth-largest steel maker POSCO.
Despite investors' increasing willingness to buy riskier assets lately, high inflation continues to dangle a sword over Asia.
The combination of rising price pressures and slowing growth was a big factor in the nearly $4.0 trillion in market capitalization that has evaporated since November, Morgan Stanley said.
NOT ONE-WAY RISE FOR DOLLAR
Underlying inflation in Australia was at the highest in almost 17 years in the second quarter, suggesting the central bank may have to keep interest rates where they are despite threats to growth.
Yields on safe-haven government bond yields, which move inversely to prices, edged higher as the MSCI all-country world equities index appeared poised for a sixth straight day of gains, the longest string since May.
The benchmark 10-year US Treasury yield ticked up to 4.11 percent, up a basis point from late Tuesday in New York and 8 basis points higher on the year.
The 10-year Japanese government bond yield rose 3 basis points to 1.64 percent.
The US dollar stayed firm, holding much of the ground gained against the euro and yen the previous day after Treasury Secretary Henry Paulson said a strong dollar was "really very important," a variation on his usual comments about the currency.
"The dollar broke through some key levels and has upside momentum," said Motonari Ogawa, director of forex trading at Barclays Bank in Tokyo. "But Japanese exporter selling could emerge at these levels, and it won't be a one-way rise for the dollar," said Ogawa.
The dollar was up 0.1 percent at 107.32 yen. The euro was little changed at $1.57832 and flat against the yen at 169.38, not far from a record high 169.91 yen hit on Monday.
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