Shares higher in mid-trade on falling oil prices

MANILA, Philippines -- Shares were higher halfway through Wednesday's session as falling oil prices encouraged bargain-hunting in blue chips.

At 10:35 a.m. (0235 GMT), the 30-company composite index was up 31.19 points or 1.3 percent to 2,441.17.

The broader all-share index advanced 16.41 points or 1.1 percent to 1,545.15.

"The rally is being underpinned by falling oil prices, it could be in the process of getting the air out of that bubble," said Francisco Liboro, president of PCCI Securities.

"If prices drop below $120 a barrel, it's confirmation of the bubble bursting."

Light, sweet crude for August delivery was down $3.09 to $127.95 a barrel on the New York Mercantile Exchange Tuesday amid a perceived decline in US oil demand and expectations that a hurricane coursing through the Gulf of Mexico would spare most offshore oil production there.

The closing price was nearly $20.00 down from a record high of $147.27 in recent weeks.

"The recent hefty oil price drop eases pressure on the economy. It is going to be very beneficial for companies and the economy, in general, if the decline would be sustained in the next few days. It will boost optimism that the uptrend (in oil prices) has been broken," said PCCI's Liboro.
"The question is how much volume there is in the (stock) market. A bigger volume means investors are convinced it is worth re-entering the market."

Soaring oil prices have hit the Philippines hard as the country imports nearly all of its oil requirements.

The Philippine central bank has warned inflation may remain at double-digit levels this year due to escalating food and energy costs, before it eases in 2009. The bank raised key interest rates last week by half a percentage point, the second increase in two months, to combat inflation, which hit a 14-year high of 11.4 percent in June.

Index leader Philippine Long Distance Telephone Co. gave up early gains, shedding 0.4 percent to P2,400.

Conglomerate Ayala Corp. rose 1.9 percent to P267.50.

Financial issues led advancers, with second-ranked Banco de Oro Unibank rallying 5.4 percent to P39.

Bank of the Philippine Islands, the country's third largest bank climbed 3.9 percent to P40.50. Top-ranked Metropolitan Bank and Trust Co. jumped 4.7 percent to P33.50.

Among property stocks, Megaworld Corp., the nation's second biggest property developer, surged 6.6 percent to P1.30.

($1 = P44.40)

Oil near six-week low on demand woes

SINGAPORE -- Oil prices held near a six-week low on Wednesday, as worries increased over dwindling US demand at the same time as fears eased hurricane Dolly would deal a major blow to oil and gas supply.

A rebound in the dollar on the back of comments from a Federal Reserve official suggesting US interest rates may have to rise also reduced the appeal of commodities, prompting investors to exit oil.

US light crude for September delivery fell 12 cents to $128.30 a barrel after it fell as low as $125.63 a barrel in intraday trading on Tuesday -- its weakest since early June.

London Brent crude slipped 25 cents to trade at $129.30 a barrel by 0112 GMT.

The fall in US crude extended losses from the July 11 record high over $147 a barrel that marked the steepest price fall in dollar terms in oil's history -- leading some analysts to question how soon the market will resume its six-year rally.

"The decline in oil prices reflects concerns that slower economic growth in the US and high oil prices are crimping oil demand," said David Moore, commodity strategist at Commonwealth Bank of Australia.

Mounting economic woes in the United States and continued lackluster energy demand from the world's biggest consumer nation were key factors behind the drop in oil prices, dealers said.

Oil is, however, still up almost 30 percent this year and more than six times higher than in 2002, in a rally driven by booming demand from fast-growing Asian economies such as China.

Remarks by Philadelphia Fed president Charles Plosser that rising inflation could force the Fed to start raising interest rates even before financial markets recover amid a surge in inflation, supported the dollar, in turn, hitting crude.

Further alleviating supply concerns, hurricane Dolly was expected to make landfall well away from the most sensitive offshore platforms, even after it was upgraded to the Atlantic season's second hurricane late Tuesday.

US Gulf of Mexico producers shut 5.0 percent of oil and natural gas production Tuesday but those shutdowns were expected to be short-lived.

Market attention was also on US data due later on Wednesday, which are expected to show crude stocks falling by 700,000 barrels, according to a Reuters poll.

Refinery utilization was little changed at around 89.5 percent of capacity but inputs of feedstock, or crude runs, likely dropped, some of the polled analysts said.

The US Energy Information Administration will release its inventory report for the week to July 18 at 1435 GMT

Central bank hints at further rise in key rates

The central bank, Bangko Sentral ng Pilipinas (BSP), said Tuesday robust domestic demand would keep the economy buoyant despite fast-rising consumer prices, which gives it room to further raise benchmark interest rates.

BSP Governor Amando Tetangco Jr. said at a news briefing that he did not see domestic output sagging even if money supply growth had slowed down because of the recent increase in the central bank’s interest rates.

“If you look at sources of growth, it’s not too capital-intensive, so it’s really not that much affected directly by credit conditions,” Tetangco said.

An earlier report to the policymaking Monetary Board of the BSP said growth in the broadly defined money supply fell to about five percent in April, nearly half the expansion in March.

One of the key indicators closely watched by the BSP in managing inflation, domestic liquidity, or m3, refers to the total supply of money within the economy.

The BSP has not released the official figure on domestic liquidity growth. Tetangco said data were still being validated, given recent changes in the format for banks’ reporting of outstanding loans.

In the past two months, the BSP raised its overnight borrowing rate by a total of 0.75 percentage point to 5.75 percent in view of sharper-than-expected price shocks.

Monetary tightening normally takes more than a year to be fully felt, but Tetangco said monetary action would have immediate impact.

The governor said the economy could withstand its recent monetary tightening.

“If you look at demand conditions, they continue to be buoyant,” he told reporters. “If you look at historical trend in [overseas Filipinos’ cash] remittances, for instance, if inflows rise this quarter, the impact on consumption will be felt in the next quarter.”

He agreed that the overseas Filipino remittance engine was one of the factors giving the central bank room to navigate the difficult economic environment this year

ADB cuts growth forecast for ASEAN

The Asian Development Bank on Tuesday, warning that higher inflation would continue to plague much of Southeast Asia on record-high fuel and food prices, lowered its economic growth forecast for the region by one percentage point and prodded central banks to tighten monetary policy to control price surges.

In the July issue of its semiannual Asia Economic Monitor, the ADB said the region’s slowing yet solid growth outlook remained vulnerable to a higher-than-expected spike in inflation, protracted slowdown in the United States and any further tremor in global financial markets.

The ADB cut its growth projection for the 10-member Association of Southeast Asian Nations (ASEAN) to 5.5 percent this year.

It forecast the same growth rate for the Philippines in 2008 and 5.6 percent in 2009.

The report said economic expansion in three of the four big-population ASEAN countries—the Philippines, Malaysia, Indonesia and Thailand—was expected to slow down.

For the Philippines, which posted a 31-year-high growth in gross domestic product (GDP) of 7.2 percent in 2007, the report said “the outlook has weakened on the deteriorating external environment: softer global demand for exports and soaring rice and fuel prices dampen consumer spending.”

It predicted that Thailand’s economic growth would accelerate to 5.0 percent this year from 4.8 percent in 2007, as fiscal spending and a largely accommodative monetary stance would help curb the slowdown in export growth.

It said Indonesia’s GDP growth would slow down with slackening export growth, but buoyant consumption and strong investment with some fiscal easing were expected to help support growth of about 6.0 percent this year and next.

Malaysian economic growth is projected to slow down to 5.4 percent this year from 6.3 percent last year as industrial activity softens, particularly in the manufacturing sector, undermined by weaker US demand for consumer electronics, the report said.

“In Indonesia, the Philippines and Taipei, China, the 2008 ADB growth forecast for GDP remains higher than the long-term average trend growth in the last eight years,” it said. “However, all of these economies now have higher inflation forecasts for 2008 compared with the latest target/official forecasts, suggesting that inflation risks have been elevated together with heightened inflation expectations.”

Fall in oil inspires gains in Asia stocks

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.

Dollar nudges higher against yen in Asia

TOKYO, Japan -- The dollar rose slightly against the yen in Asian trade Wednesday, propped up by a drop in oil prices and renewed speculation about possible US interest rate rises, dealers said.

The US currency was at 107.35 yen in Tokyo morning trade after 107.25 in New York late Tuesday.

The euro was steady at $1.5782 against $1.5781 while rising to 169.47 yen from 169.27.

"A fall in oil prices is the main reason for the stronger dollar, along with hawkish comments by the Philadelphia Fed," said Kanako Oikawa, a currency strategist at Traders Securities.

Philadelphia Federal Reserve president Charles Plosser warned in a speech that a hike in US interest rates was unavoidable in the short-term in the face of inflation pressures.

While Plosser is seen as one of the most hawkish members of the Fed's rate-setting committee, his remarks rekindled speculation about possible US rate hikes that could boost the dollar, dealers said.

Investors generally prefer currencies offering higher yields.

US stocks staged a late rally Tuesday on easing worries about high energy costs and renewed interest in the battered financial sector.

The dollar also found support from US Treasury Secretary Henry Paulson, who reiterated Washington's preference for a strong currency and renewed his backing for troubled US mortgage finance giants Fannie Mae and Freddie Mac.

But worries about the health of the US economy have not been completely erased and whether the dollar can rise above 108 yen depends on movements in stock markets and oil prices, Oikawa said.

Dollar stable versus euro, yen

The dollar steadied in European trading on Tuesday as worries about resurgent oil prices offset relief that major US banks' earnings were not so bad as feared, dealers said.

Attention was also being given to the latest US house price index due Tuesday, that was expected to show a continued decline, they added.

In morning deals, the European single currency stood at 1.5921 dollars, unchanged from late on Monday in New York.

Against the Japanese currency, the dollar edged up to 106.45 yen from 106.41.

"For the dollar, the fortunes of the banking system remain critical to sentiment," said Calyon economist Daragh Maher.

The dollar had won a boost overnight after Bank of America posted a quarterly profit well above expectations, further soothing jitters about US financial woes after last week's smaller-than-expected loss at Citigroup.

But gains in the dollar were short-lived as oil prices, which plunged more than 16 dollars a barrel in New York last week, surged higher as a tropical storm barrelled through the Gulf of Mexico, threatening energy installations.

A week ago, worries about the US financial sector had sent the euro soaring to a historic peak of 1.6038 dollars.

The euro continued to be supported by the higher level of interest rates in the eurozone compared with those in the United States and Japan because investors generally prefer currencies offering better yields, dealers said.

Traders returning to work in Tokyo on Tuesday after Monday's public holiday in Japan meanwhile opted to wait for fresh leads after a rebound in oil prices counter-balanced easing concern about problems in the US financial sector.

"The direction of the dollar against the yen remains unclear," said Saburo Matsumoto, chief foreign exchange strategist at Sumitomo Trust Bank.

Dealers were also monitoring trading in the euro against the yen.

"We're interested in watching when the yen will hit a new low" beyond 170 per euro, said Matsumoto.

The pound steadied after coming under pressure a day earlier when Bank of England policy-maker David Blanchflower had warned that the British economy was heading into recession and that interest rates should fall to "well below" their current level of 5.0 percent.

In London morning trade on Tuesday, the euro changed hands at 1.5921 dollars against 1.5921 late on Monday, at 169.52 yen (169.42), 0.7947 pounds (0.7947) and 1.6187 Swiss francs (1.6206).

The dollar stood at 106.45 yen (106.41) and 1.0166 Swiss francs (1.0176).

The pound was at 2.0039 dollars (2.0032).

On the London Bullion Market, the price of gold increased to 972.93 dollars per ounce from 960.50 dollars late on Monday.

Euro

The euro (currency sign: €; currency code: EUR) is the official currency of the European Union (EU). Fifteen member states have adopted it, known collectively as the Eurozone (Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, Spain). The currency is also used in five further countries with formal agreements and six other countries without such agreements. Hence it is the single currency for over 320 million Europeans.Including areas using currencies pegged to the euro, the euro directly affects close to 500 million people worldwide.[2] With more than €610 billion in circulation as of December 2006 (equivalent to US$802 billion at the exchange rates at the time), the euro is the currency with the highest combined value of cash in circulation in the world, having surpassed the U.S. dollar (USD

Taking official estimates of 2007 GDP, the Eurozone is the largest economy in the world by March 2008 after the USD/EUR exchange rate surpassed 1.56
The euro was introduced to world financial markets as an accounting currency in 1999 and launched as physical coins and banknotes on 1 January 2002. It replaced the former European Currency Unit (ECU) at a ratio of 1:1.