Asian stocks down despite Japanese rebound

Asian shares were mostly lower yesterday, with China's benchmark index dropping to a 20-month low, although shares rebounded in Japan as investors took heart from falling oil prices and chased gains in the auto sector.

Fear of a global economic slowdown sent markets down yesterday.

MSCI's index of Asia stocks outside Japan was 1.5 percent lower by 06.05 GMT, dragged down by resource-related stocks in the main Hong Kong, Singapore and Sydney indexes.

Financial spreadbetters expected Britain's FTSE 100, France's CAC-40 and Germany's DAX to open down more than one per cent.

The prospect of cheaper fuel and lower inflation gave a boost to a few stocks, such as Japanese exporter Honda Motor Company, which gained 5.1 per cent, helping the Nikkei average to close up 0.6 per cent.

But most shares suffered as the bigger picture began to bite. Tokyo's Nikkei 225 index gained 0.64 per cent to 12,689.59 after losing nearly two per cent the day before following the surprise resignation of Prime Minister Yasuo Fukuda.

"Investors bought back shares as sentiment turned positive on falling oil prices," said Kazuhiro Takahashi, a strategist at Daiwa Securities SMBC Co Ltd.

In Japan, top automaker Toyota Motor Corp rose 2.1 per cent, Nissan Motor Co. added 2.4 per cent and Honda Motor Co jumped 5.1 per cent.

Fast Retailing rose after the retailer reported solid same-store sales growth at its Uniqlo casual clothing stores and extended those gains, albeit briefly, after saying it was planning to open Uniqlo stores in Russia and was also considering entering the Indian market.

Market players said that gains were likely to be temporary at best and that the longer term was gloomy, with Japanese political uncertainty after Prime Minister Yasuo Fukuda resigned on Monday likely to inhibit the foreign investors who provide some 70 per cent of Tokyo market activity.

The benchmark Nikkei gained 80.12 points to 12,689.59, while the broader Topix rose 0.7 per cent to 1,220.55. Trading house Mitsubishi Corp lost 4.6 per cent to 2,695 yen to become one of the top drags on the Nikkei 225 by volume weight. It has lost 11 per cent this week.

Inpex Holdings lost 3.9 percent to 1.03 million yen. It has lost 14 per cent this week. Fast Retailing gained 2.9 per cent to 11,330 yen, becoming the second greatest contributor to the Nikkei, while Komatsu Ltd slumped 7.1 per cent to 2,095 yen after a brokerage downgraded the world's second biggest earth-moving equipment maker.

Honda gained 5.1 per cent to 3,530 yen and Toyota Motor Corp rose 2.1 per cent to 4,850 yen. Canon Inc climbed 1.7 per cent to 4,770 yen. Share prices also bounced back in South Korea, where the KOSPI gained 1.4 per cent after sinking to its lowest level in over a year earlier in the week on worries over the country's weakening currency.

In Thailand, the SET Index fell 1.4 per cent to 649.93 amid mounting political unrest a day after the prime minister imposed emergency rule on the country.

Meanwhile across most of the region, weakening oil prices reinforced fears that a weakening world economy will slow global demand for raw materials. Oil prices dropped to $107.32 a barrel yesterday afternoon in Asia.

China's benchmark Shanghai Composite Index fell 1.2 percent to 2,276.67, with most sectors except airlines seeing moderate losses.

China Shenhua Energy, the country's biggest coal miner, fell 5.6 per cent, while Zhongjin Gold dropped 6.9 per cent.