Oil prices sink on global growth concerns; hit shares

Oil prices resumed their fall on Wednesday, with Asian shares also pulling back as global growth concerns and political uncertainty in Greece prompted a flight to safety.

Brent crude prices dipped 1.3 per cent to US $65.98 a barrel, though it remained above a five-year low of US $65.29 touched on Tuesday. US crude prices in futures trade were down 1.4 per cent at US $62.96. Oil prices have been under pressure amid a massive supply glut, after OPEC decided against an output cut.

World markets have been buffeted in recent months on signs of weakening global growth, with a rout in oil prices in particular triggering a bout of volatility.

Investors could take no comfort from data showing China's annual consumer inflation eased to a five-year low of 1.4 per cent in November, signalling persistent weakness in the Chinese economy, which is the world's second-largest.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 per cent, while Japan's Nikkei stock average edged lower by 1.6 per cent.

"Market euphoria over the recent positive news is fading out for now as investors shift to risk-averse from risk-taking," said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center.

A Japanese government survey released before the country's stock market opened showed big Japanese manufacturers grew less optimistic in October-December and see conditions worsening further in the following quarter, suggesting that the economy is slow to recover from a recession.

Adding to pressure on crude prices, the American Petroleum Institute, an industry group, reported a 4.4 million barrel build in crude stockpiles last week when analysts had predicted a drop.

European political woes added to the gloom. Greek shares and sovereign bond markets plunged after the government in Athens brought forward a presidential vote that heightened uncertainty over the country's transition out of its IMF/EU bailout.

"Volatility surged, most equity markets were routed and a number of consensus trades (were) shaken in London/New York," Sean Callow, a currency strategist at Westpac, said in a note. "US interest rates fell on safe-haven demand for Treasuries and the US dollar followed suit."

The yield on benchmark 10-year notes stood at 2.220 per cent in Asian trade, flat from its US close on Tuesday.

Among global currencies, the US dollar was down about 0.2 per cent on the day at 119.51 yen, after shedding more than 2 per cent at one point on Tuesday to trade as low as 117.90 yen. The American unit marked a seven-year high of 121.86 yen on Monday.

The euro was steady on the day at US $1.2374, while the dollar index, which tracks the Greenback against a basket of six currencies, was flat on the day at 88.702.

Chinese shares stabilised after a sharp sell-off on Tuesday dragged down global sentiment. The Shanghai Composite Index was up 0.4 per cent, after a rollercoaster session on Tuesday saw it mark a 3-1/2-year high before collapsing to lose more than 5 per cent.

China's official bond clearing house also rattled markets by tightening collateral rules. It excluded about 500 billion yuan (US $81 billion) worth of corporate bonds from being used for bond repurchase agreements.

On Wall Street overnight, major indexes ended lower, though the S&P 500 was nearly flat.

(Reuters)