Asian stocks edged up on Friday, with shares outside Japan rebounding from a 23-month low on reports Lehman Brothers had put itself up for sale, suggesting a smaller risk of a Wall Street meltdown spreading to the region.
The optimistic market mood spilled over to Europe, with Eurostoxx 50 futures, Germany's DAX futures and French CAC 40 futures up between 1.2 and 1.4%.
Oil prices crept above $101 a barrel, supported by fears Hurricane Ike could disrupt U.S. production, but crude remained on course to fall below the psychologically important $100 level, especially with the euro falling to a one-year low against the dollar this week.
Gains in bank stocks such as Mitsubishi UFJ Financial Group and South Korea's largest lender Kookmin Bank outpaced the broad indexes on optimism Lehman, whose shares plunged more than 40% on Thursday, would find a suitor by this weekend.
The U.S. Treasury and the Federal Reserve are reportedly engineering the sale of Lehman through a consortium of private firms, the Washington Post said.
"We have reports about Lehman's buyout talks today, and that is positive because that means the number of ailing entities will decrease through an industry realignment," said Masaru Hamasaki, senior strategist at Toyota Asset Management in Tokyo.
Japan's Nikkei share average finished up 0.9%, rebounding from a six-month low.
The MSCI index of other Asia-Pacific stocks climbed 1.3% after closing at its lowest since October 2006 on Thursday.
South Korea's KOSPI rallied 2.4%, led by shares of Samsung Electronics Co Ltd and POSCO, the world's No. 4 steelmaker.
Major Asian markets will be closed on Monday for holidays.
Many investors were in wait-and-see mode ahead of any developments with Lehman, though in the thick of the financial crisis, any progress has usually been followed with signs of trouble at other institutions.
Indeed, Washington Mutual Inc, the largest U.S. savings and loan, was downgraded on Friday to below investment-grade status by Moody's Investors Service, which cited constraints to tapping capital markets.
Impatience with the financial sector's persistent problems as well as a global economic slowdown that hit Europe and Japan hard has led to a reduction in risk taking in just about every asset class. This so-called deleveraging boosted to the U.S. dollar as U.S. investors bring some money back home from abroad.
U.S. CURRENCY ATTRACTS INVESTORS
Institutional investors in particular have been ploughing money back into the dollar.
In the last month, cross-border flows into the dollar have been in the 94th%ile, meaning they have been higher only 6% of the time, according to State Street Global Markets, which tracks 15% of the world's tradeable assets.
In the wake of U.S. bailout of government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac this week, analysts at State Street expect foreign central banks to continue to add to their immense foreign exchange reserves and recycle the proceeds into Treasury debt.
"The GSE bail out adds a whole new dimension to global imbalances. It is also perhaps no coincidence that the one asset that has been rising in recent days is the U.S. dollar," they said in a note.
The euro was largely unchanged at $1.4015 after hitting a one-year low around $1.3880 the prior session.
The dollar was slightly higher against the yen, at 107.30 yen.
However, the euro edged up 0.1% to 150.37 yen after tumbling to a two-year low on Thursday.
