Asian shares slip from three-week high as oil rally pauses

By Chuck Mikolajczak

NEW YORK (Reuters) – Major world stock markets slipped on Friday, but still had their best week this year, as crude oil prices stabilized.

Yields on short-dated U.S. bond yields rose though after U.S. inflation data raised the possibility the Federal Reserve may raise interest again earlier than anticipated.

Crude oil prices slipped also on Friday but still posted gains for the week for the first time this month.

Advances in oil and equity prices this week were sparked by moves by oil producers, including Saudi Arabia and Russia, to cap output, but a record buildup in U.S. crude oil stockpiles kindled worries over persisting global oversupply.

The renewed weakness in oil prices on Friday affected U.S. stocks, with the SP energy index (.SPNY) closing 0.35 percent as the worst performer of the 10 major SP indexes.

“We have seen oil come back off and that has put some pressure on the market,” said Walter Todd, chief investment officer at Greenwood Capital Associates in Greenwood, South Carolina.

MSCI’s index of world shares was 0.25 percent lower, but was up 3.7 percent for the week, its best since October.

“We have had a lot of very concerning economic data in the first six weeks of the year, and I think over the last few weeks we have seen a significant improvement in that data,” said Tony Roth, chief investment officer at Wilmington Trust in Wilmington, Delaware.

The Dow Jones industrial average (.DJI) fell 0.13 percent on Friday to 16,391.58, while the SP 500 (.SPX) was little changed at 1,917.76, and the Nasdaq Composite (.IXIC) added 0.38 percent to 4,504.43.

The SP 500 index gained 2.8 percent for the week though, its best weekly performance since November.

The pan-European FTSEurofirst 300 (.FTEU3) index of leading shares lost 0.7 percent, weighed by weakness in oil, bank and auto shares, but was still up nearly 4 percent for the week.

Brent crude oil futures (LCOc1) slumped 3.7 percent to settle at $33.01 a barrel while U.S. crude (CLc1) settled down 3.7 percent at $29.64. U.S. WTI crude was up 1.1 percent for the week.

The global oil market is oversupplied by around 1.8 million barrels per day (bpd), but that glut could be halved if a deal to freeze oil production at last month’s levels takes effect, a top Russian energy official said on Friday.

YIELDS RISE ON U.S. INFLATION DATA

Yields on benchmark 10-year Treasuries edged up to around 1.75 percent, while yields on shorter-dated U.S. two-year Treasury notes rose to 0.7459 percent.

U.S. underlying inflation in January rose by the most in nearly 4-1/2 years, according to data U.S. Labor Department data on Friday, suggesting the Federal Reserve could gradually raise interest rates this year as forecast in December.

However, following similar comments from other Fed officials in the past week, Cleveland Fed President Loretta Mester said on Friday that interest rates will likely need to remain accommodative for some time, while other officials maintain that weak inflation and global turbulence are enough reasons to pause on further hikes.

“While the data have been a mixed bag, fears of a recession have been overblown,” said Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management in Portland, Oregon.

The Japanese yen rose (JPY=) against the U.S. dollar to $112.68 and the euro rose against the greenback also, trading up 0.2 percent at $1.1018. The U.S. dollar dipped against an index of major currencies (.DXY). [USD/]

After gains last year, in anticipation of the Federal Reserve interest rate rise in December, the U.S. dollar has weakened in recent weeks as expectations for further rate rises have declined.

The British pound (GBP=) strengthened late and was last up 0.28 percent to 1.4371 against the dollar after Lithuanian President Dalia Grybauskaite said in a tweet that European Union leaders agreed on Friday on a deal to keep Britain in the 28-nation bloc.

(Additional reporting by Lewis Krauskopf; Editing by Clive McKeef)

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