/ 28 November 2007

Oil dips below $94 as stocks struggle

Oil fell below $94 a barrel on Wednesday, pinching some of Asia’s top resource stocks, while nagging fears that a credit market squeeze will sap global growth weighed on the dollar and the region’s exporters.

News that top United States bank, Citigroup, got a $7,5-billion capital injection from Abu Dhabi’s investment arm on Tuesday buoyed US stocks and the dollar overnight and helped most Asian markets start with modest gains.

But the confidence boost proved too short-lived to push the region’s stocks higher as the news came against the backdrop of more dismal US economic data and wary investors locked in profits on the dollar’s rise and a rare bounce in bank stocks.

”The Citigroup [news] is important but it’s one small aspect of the bigger picture,” said Peter Vann, head of investment research at Constellation Capital Management in Australia. ”It’s highly likely there is going to be greater losses.”

US crude eased to a low of $93,80 a barrel, its lowest since November 19, pressured by concerns about global economic growth and prospects the Opec exporters’ cartel will lift output.

”It’s difficult to buy oil when you know that the market is worrying about a recession in the world economy, especially in the United States,” said Ken Hasegawa, commodity derivatives sales manager of Fimat Japan.

Gold which serves as an inflation hedge and often moves in step with crude, extended Tuesday’s losses and traded at around $807 an ounce.

More turmoil?

At 4am GMT, Tokyo’s Nikkei average was down 0,3%, with the dollar’s renewed retreat against the yen pressuring exporters such as Toyota. The MSCI’s measure of other Asia Pacific stocks was 0,4% up from Tuesday, when it settled 1% lower, paring earlier losses.

Abu Dhabi’s purchase of a 4,9% stake in Citigroup lifted financial stocks on Tuesday, suggesting battered bank stocks may start looking attractive again, but investors remain wary the credit turmoil is not over yet.

Credit Suisse has said it expects a bigger fourth-quarter net loss at Citigroup, citing further deterioration in capital markets, while Wells Fargo, the second-largest US mortgage lender, said it will take a $1,4-billion fourth-quarter charge related to losses on home equity loans.

Strong hints from two Federal Reserve Bank officials that they would not support an interest rate cut next month even after US consumer confidence hit a two-year low in November were a further drag on the financial sector.

Bank stocks that rose the most on the Citigroup stake news came under pressure with Japan’s Mitsubishi UFJ and Mizuho Financial down by about 0,8% and 1,4% respectively. Citigroup fell 2,9% in Tokyo after its US-listed shares gained 1,5%.

Resource stocks also came under pressure following the fall in commodity prices. Mining giant BHP Billiton slid 1,4%, gold miner Newcrest Mining shed 4,9% and energy firm INPEX Holdings lost 3,4%.

Investors also took profits on the dollar’s surge, pushing the currency to a low of about ¥108,30 from a near one-week high above ¥109 earlier in the session.

The euro slipped below ¥161 and was little changed against the dollar at around $1,4822, still within sight of a record high of about $1,4966 set on November 23. – Reuters