Shares ease on cloudy bank outlook, weak US data

Gains in commodities boosted shares in resources companies, such as Japan's Sumitomo Metal Mining and Australia's BHP Billiton, helping lift some indexes off earlier lows.

European markets were set to open lower on further signs the US economy is flagging, and worries that there will be more bank write-downs after a slew of downgrades on US bank earnings.

Financial bookmakers in London forecast Britain's FTSE 100, Germany's DAX, and France's CAC-40 to open around 0.4 per cent lower.

Bank shares, such as Japan's Mitsubishi UFJ and Australia's Macquarie Group, were among the biggest fallers, following the bank downgrades, a profit warning from Deutsche Bank and comments from European central bankers that there was no end in sight to the global credit crunch.

"Over the foreseeable future, there is no doubt that we'll see a slowdown in the rate of loan growth, an element of margin compression and an increase in the level of bad debts," said Angus Gluskie, portfolio manager at White Funds Management in Australia.

"Those three factors certainly mean that bank earnings will be less than expectations people had a few months ago."

Tokyo's Nikkei closed 0.8 per cent lower, recouping some of an earlier near-2 per cent drop, but still pressured by weaker exporters such as Honda Motor Co Ltd as the stronger yen promised to erode their profits.

MSCI's index of other Asian shares fell 0.5 per cent by 0612 GMT, taking its losses so far this year to around 14 per cent.

Seoul's KOSPI and Sydney's S& P/ASX 200 index both shed 0.2 per cent, while Taipei's TAEIX dropped 1.9 per cent and Shanghai sank 3.4 per cent.

Hong Kong's Hang Seng was a bright spot, rising 0.4 per cent on reassuring earnings from conglomerate Hutchison and property group Cheung Kong.

OIL AT $106

Oil traded above $106 (Dh389) dollars a barrel after a US government report showed larger-than-expected drops in fuel stocks and declining fuel production in the world's top oil consumer.

US crude oil futures added 41 cents to $106.33, while London Brent traded at $104.38.

The dollar edged up but stayed within striking distance of a record low versus against the euro after the European Central Bank president's remark that euro zone rates were at the right level cooled expectations for a near-term ECB rate cut.

US short-term interest rate futures indicate investors see around a 40 per cent chance of the Fed cutting interest rates by 50 basis points in April. A 25 basis-point rate cut is fully priced. Against the yen, the dollar traded at ¥98.93. The US currency hit a 13-year low of ¥95.77 on EBS early last week. The euro traded at $1.5805 against the dollar.

Japanese government bond futures were lifted by the Nikkei's fall and strength in the yen.

June 10-year JGB futures rose as high as 141.03, before trimming gains to 140.77 a rise of 0.33 of a point on the day.

The 10-year JGB yield fell 0.5 basis points to 1.270 per cent edging back towards a three-year low of 1.215 per cent reached on Wednesday.

Surging oil and a weaker dollar sent investors to gold. Spot prices rose to $952.30/953.10 an ounce. (Reuters)