Asia stocks post biggest weekly dip in 10 months

A man walks past a stock quotation board outside a brokerage in Tokyo. Asian stocks gained on Friday but inflation continues to loom the region. (REUTERS)

Asian stocks inched up on Friday as exporters gained, but inflation fears that also hit bonds kept the broad index on track for its biggest weekly decline since the global credit crisis erupted 10 months ago.

European stocks were expected to open lower, with higher costs the main worry for investors ahead of the latest data on US consumer prices due later in the day.

Concerns about a pullback in demand for raw materials from big consumers such as China knocked down shares of shipping companies, especially after a key gauge of seaborne trade in dry commodities had its biggest drop ever on Thursday.

Government bonds around the world continue to be pummelled by expectations that central banks are more concerned about the inflationary effects of high oil prices than sluggish economic growth. The benchmark yield on the 10-year Japanese government bond rose to the highest since July 2007.

Oil prices were steady at $136.61 (Dh502.72) a barrel slightly below an all-time record of $139.12 (Dh511.96) hit last week.

"Overriding macroeconomic factors remain grim, with oil's persistent strength and inflation pressure amid a global economic slowdown," said Bae Sung-young, market analyst with Hyundai Securities in Seoul.

Japan's Nikkei share average ended up 0.6 per cent but posted its largest weekly drop in three months.

A rebound in the US dollar in the last three months has spurred demand for shares of high-profile exporters like Honda Motor Co Ltd and Canon Inc.

South Korea's KOSPI clawed 0.2 per cent higher, boosted by technology heavyweight Samsung Electronics However, the index chalked up its biggest weekly decline of 2008, down 4.9 per cent.

Australia's benchmark equity index climbed 0.9 per cent, helped by resource-related shares Investment firm Babcock & Brown Ltd lost a third of its value as concerns mounted about the company's debt and ability to raise funds, taking losses to over 50 per cent in two days.

The MSCI index of Asian equities was down 6.2 per cent this week, the largest decline since the week of August 19. The global stocks index was largely unchanged on the day, having fallen for five straight days to the lowest in two months.

Freight companies such as Mitsui OSK Lines Ltd in Japan and China COSCO, China'a largest shipping firm, were under pressure after the Baltic Exchange's dry freight index posted its biggest single-day percentage decline ever.



Government bonds, particularly in Japan, have been roiled in the past few weeks due to surprisingly blunt inflation-fighting rhetoric from central bankers in Europe and the United States that has been seen as opening the way for a potential Bank of Japan rate rise later this year.

"Almost every piece of economic data – from wholesale prices in Japan, to producer prices in the UK and CPI in China – has served to reaffirm fears that inflation is out of control," said analysts with State Street Global Markets in a research note.

"Frankly, there is no good reason to buy government bonds in this environment."

The benchmark 10-year JGB yield rose as much as 8.5 basis points to 1.880 per cent, an 11-month high.

Pointed comments about the risk of higher inflation from Fed Chairman Ben Bernanke in the last two weeks have weighed on US Treasuries. The yield on the two-year note the maturity most sensitive to shifts in monetary policy, rose to 3.11 per cent, the highest level since early January.

Several central banks in the region, including those in China, India, Indonesia and the Philippines, have already begun to tighten monetary policy to fight upward pressure on prices.

The dollar was steady against the yen at 107.80 yen close to a nearly four-month high of 108.08 yen. The euro was nearly unchanged against the dollar at $1.5450 ahead of a Group of Eight finance ministers meeting which begins later on Friday in Japan.