MARKET, By Rafael Nam Published: May 19, 2008

HONG KONG: Asian shares hit a new four-month high on Monday as a relentless rise in oil prices bolstered resource shares, but wariness about inflation and doubts about the U.S. economy kept gains in check.

The dollar was range-bound after its drop on Friday, when data showing a plunge in U.S. consumer confidence to a 28-year low raised doubts about when the U.S. Federal Reserve will raise interest rates in the world’s largest economy.

Asian shares have rebounded 20 percent since hitting the year’s low in mid-March, but record oil prices continue to worry, despite the benefit to resource companies, given the prospects of inflation at a time of slowing global economic growth.

“In the short run, you might say it’s good for resources, but what I’d suggest is that the very high prices are, in fact, steadily and very meaningfully eroding demand,” said Angus Gluskie, portfolio manager at White Funds Management in Sydney.

“Ultimately, that’s not going to provide a pretty picture.”

The MSCI broad measure of Asian stocks outside Japan rose 0.5 percent by midmorning trade, after earlier hitting its highest level since mid-January. However, that is still down about 5 percent down for the year.

The index breached the key 500-point level on Friday, extending a recovery since mid-March on hopes the worst of the credit crisis has passed and that earnings in Asia will prove more resilient than expected.

Gains in Asian stocks on Monday were driven in large part by resource firms like Woodside Petroleum of Australia, though the overall advances were moderate.

Australian shares rose 0.7 percent. The Nikkei average in Tokyo and shares in Taiwan and Hong Kong rose less than 0.5 percent each.

But shares in South Korea fell 0.3 percent, while Shanghai lost 1.1 percent.

Concerns over tight fuel supplies led oil prices higher, with U.S. light crude for June delivery up 33 cents at $126.62 a barrel, not far from the record $127.82 hit on Friday.

Oil prices have risen six-fold since 2002 and doubled since last year as strong demand from China and other developing nations comes amid tightening production capacity.

“The market still has a bullish leaning because of a weak dollar and fuel supply concerns,” said David Moore, a commodity analyst at the Commonwealth Bank of Australia.

Gold also rose, with spot prices up at more than $903 an ounce against $899.55 late in New York on Friday, when prices of bullion jumped above $900 to its highest level in three weeks, tracking higher oil prices and a weaker dollar.

The dollar inched up 0.1 percent to ¥104.20, though the weakening trend this year remains intact.

The U.S. currency dropped on Friday on data showing the Reuters/University of Michigan index of consumer confidence dropped to 59.5 in May, the lowest since June 1980.

Concerns abound about how central banks around the world will deal with rising inflation at a time of slowing global economic growth.

The Bank of Japan is expected to keep interest rates unchanged at 0.5 percent at its two-day meeting that ends on Tuesday, with its hands tied by lingering uncertainty over the global economy and worries about rising energy costs.

Japanese government bond futures climbed, pulling away from a seven-month low hit last week, as dealers covered short positions. The market remains volatile amid concerns about global interest rates and the pullback of hedge funds and other players.

June 10-year futures rose 0.57 point to 135.28 by mid-morning.

source : IHT

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