Oil prices held below $110 on Wednesday and the dollar neared a 10-½ month high, raising hopes of an easier business environment for manufacturers and exporters, but rattling resource-focused stocks.
Japan's Nikkei average was up nearly 1%, although MSCI's index of other Asian markets was 0.8% lower, dragged down by resource-related stocks in Hong Kong and Singapore
Oil prices stayed under pressure as fears receded that Hurricane Gustav would disrupt Gulf of Mexico oil production, and U.S. growth worries continued to nag. But dealers expected volatility in commodity prices after a big U.S. hedge fund, Ospraie Asset Management, announced it was shutting its flagship commodities product after steep losses.
Ospraie is 20%-owned by Lehman Brothers, itself in focus after Korea Development Bank said it was talking to the U.S. bank about taking a stake. Lehman shares fell more than 3% in Tuesday after-hours trading.
The weaker oil price helped keep the dollar within sight of a 10-1/2-month high against a basket of major currencies as the weakness in other major economies continued to give a relative edge to the U.S. currency.
The euro and sterling were off their lows hit the previous day, but dealers were still looking to close positions ahead of monetary policy decisions by both the European Central Bank and the Bank of England on Thursday.
COKE PUTS FIZZ IN JUICE
Hong Kong's Huiyuan Juice overflowed after Coca-Cola offered to buy the company for $2.3 billion, or HK$12.2 a share – three times its last market price and equal to the stock's all-time high. The shares soared more than 160%.
Asia's more pedestrian gainers included Japan's Fast Retailing Co Ltd, which rose 2.5% on solid sales growth at its Uniqlo casual clothing stores, and exporters like Honda Motor Co Ltd, which gained 4.5%.
"The drop in oil prices has increased expectations for lower materials costs for businesses and the dollar traded at mid-108 yen, which also gives support to the stock market," said Yukio Takahashi, market analyst at Shinko Securities.
However, the oil price drop hit resource-focused companies such as Japan's Inpex Holdings Inc, which fell 4.5%.
In Australia, the world's top miner BHP Billiton slipped about 2%, while its takeover target Rio Tinto fell a steeper 4% after the European Commission added uncertainty to BHP's hostile offer, suspending the clock on its competition probe
The Reserve Bank of Australia's first rate cut in seven years on Tuesday also boosted sectors that have been hammered over the past several months.
"What's going on globally is quite positive for domestic cyclicals," said UBS head of institutional sales, George Kanaan.
"You've got rate cuts in Australia, you've got a weaker Australian dollar, and you've got money going back into financials."
U.S. crude oil was 43 cents lower at $109.28 a barrel in early Asian trade, having lost more than $6 since Friday, dipping below its 200-day moving average of around $111 on Tuesday for the first time since May 2007.
"It's the economy, economy, economy. Everyone's worried about demand destruction," said Robert Nunan, a risk management executive at Tokyo-based Mitsubishi Corp.
"The market is bearish short- to medium-term, although it has been supported by other factors such as the hurricane and the situation in Russia and Georgia," he said.
Japanese government bonds pushed higher, with the market still enjoying the after-glow of a 10-year debt auction that highlighted solid investor demand at current yields.
"In the yen bond market, it looks like economic deceleration factors will continue to lend support for some time," said JGB strategists at Barclays Capital in a note to clients.
Analysts also said the market was taking in its stride this week's surprise resignation of Yasuo Fukuda as prime minister. Former foreign minister Taro Aso has emerged as the frontrunner to succeed Fukuda.
Benchmark 10-year yields fell 2.5 basis points to 1.465%, holding near a four-month low of 1.400%.
