Oil prices rose for a fourth day on Thursday on worries that a tropical storm may strengthen to become the worst threat to U.S. offshore oil and gas production since 2005, while the euro rose on tough inflation talk from the European Central Bank.
Asian stocks were little changed, but commodity-related shares received a boost from rising metals prices and also from crude prices, which have recovered $7 since hitting a three-month low two weeks ago to trade above $118 a barrel.
European stock index futures pointed to a lower market open with instability in the financial sector a key focus.
The euro moved further away from Tuesday's six-month low versus the dollar as ECB officials overnight doused expectations that the next move in interest rates will be lower. Some officials even suggested increases might be needed, despite an economy that is shrinking and perhaps already in a recession. "I'm not so surprised to hear some of these hawkish sounds coming from the ECB. They are facing after all inflation that is double their target," said Jan Lambregts, head of Asia research with Rabobank Global Financial Markets in Hong Kong.
"The big story continues to be about the euro zone and Japan and the disappointment in relative growth. People knew the situation in the U.S. wasn't great, but they are now having to face a deceleration in the euro zone a lot quicker than many had anticipated," he said.
The euro rose 0.5% against the U.S. dollar to $1.4782, and has recovered more than two cents from a six-month low of $1.4570 hit on Tuesday. It also gained 0.4% against the yen and sterling as dealers re-rated the expected differences in yield among the currencies.
The dollar fell 0.5% against the yen at about 109 yen well off a 7-month high around 110.66 yen set two weeks ago.
October U.S. light crude futures rose 58 cents to $118.73 a barrel climbing above a trendline that extended down from oil's all-time high of $147.27 a barrel hit on July 11.
Tropical Storm Gustav was downgraded from a hurricane this week but still poses a threat to 85% of U.S. offshore oil production in the Gulf of Mexico, underpinning oil prices.
If Gustav strengthens again and hits the Gulf as a Category 3 hurricane it would be the biggest storm to hit the region's infrastructure since 2005.
Shell Oil Co, which has the largest offshore operations, said it may begin shutting output as early as Thursday and expects to evacuate 1,300 workers by Saturday.
ASIA STOCKS LANGUISH NEAR LOWS
Asian equity markets continued to hang around two-year lows but low trading volumes, summer holidays and mixed corporate results combined to muddy the near-term direction.
"Investors are unlikely to come back to the market unless they can see an end to U.S. credit concerns and the global economic slowdown," said Katsuhiko Kodama, senior strategist at Toyo Securities in Tokyo.
Japan's Nikkei share average was largely unchanged but close to a five-month low touched last Friday.
Toyota Motor Corp, the world's biggest automaker, cut its 2009 sales forecast by nearly 7% because of severe slowdown in demand in Western markets. The revised forecast was slightly lower than analysts had expected, but the company's shares ended unchanged.
Outside of Japan, stocks in the Asia-Pacific region were up 0.5%, but within sight of a 17-month low hit last Thursday, according to an MSCI index. The pan-Asia index was within a point of a two-year low hit a week ago.
Hong Kong's Hang Seng index slipped about 1.9%, weighed by a 5% drop in China Mobile shares on an increasingly more competitive outlook for the world's largest wireless operator.
China's main stock index slipped 0.4% though conviction was lacking in just about every sector except financials, which continue to be a favourite of investors. The Shanghai composite index is down 52% so far this year, the worst performing market in the world.
"Chinese corporate earnings present a mixed picture. China's leading banks are producing the highest profits in the global industry, but the country's refiners, power producers and property companies are experiencing sharp profit declines," said Jing Ulrich, managing director and chairman of China equities at JPMorgan, in a note to clients.
Australian stocks were big gainers, with the benchmark S&P/ASX 200 index rising more than 1% to a one-month high. Shares of BHP Billiton Ltd, the world's biggest miner, rose 2.5% and led the index higher.
Gold prices, which have tended to trade in the opposite direction to the U.S. dollar for several weeks, rose 0.8% in the spot market to around $832.80 an ounce, having recovered almost $60 since hitting a 2008 low two weeks ago.
