Asian Markets Slide As Crude Oil Breach $ 146 Level

Sensex, Sydney Lead The Fall while Shanghai Stand Aside With Gains

Asian markets were broadly lower as bargain hunters snapped up shares that had been thrashed over the past few sessions. Exporters ranked among the gainers, while banks found buyers in Sydney.

Japan's Nikkei 225 Average briefly crossed into positive territory in the afternoon before slipping back on worries about high crude-oil prices and the health of the U.S. economy. The benchmark average, which slid in the previous 10 sessions for its longest losing streak since 1965, recently fell 0.2% to 13,265.40, after rising as high as 13,325.52. The broader Topix index, meanwhile, fell 0.2% to 1,298.02, after breaking a series of eight sessions fall.

The Crude Oil surged past $145 per barrel for the first time as the weak U.S. dollar and Middle East tension stoke crude oil’s record-breaking run. Brent North Sea crude for August delivery hit $145.11 in early Asian trade, before easing back to $144.90. It had settled at a record $144.26 in London on Wednesday after breaking $144 for the first time.

New York's benchmark contract, light sweet crude for August delivery, hit an intra-day record price of $144.44. By late morning the contract was 70 cents higher at $144.27 against a record close of $143.57 in the U.S. on Wednesday.

The latest surge followed a warning from Iranian Oil Minister Gholam Hossein Nozari that his country, a key crude producer, would react fiercely to any attack against it.

He said oil prices, which have been driven to record levels partly because of fears about the loss of Iran's oil output, would rise radically if Israel or the United States launched a military strike.

In Hong Kong, the benchmark Hang Seng Index fell 2.1% to 21,242.78 and the Hang Seng China Enterprises Index lost 4% to 11,139.92.

The Shanghai Composite rose 2% to 2,703.53 and the Shenzhen All Share index soared 3.4% to 811.76, with both indexes coming off initial declines.

Elsewhere, in Seoul, the Kospi fell 1.1% to 1,606.54 while Thai Set declined by 2.6% to 527.46. New Zealand's NZX 50 index fell 2.2% to 3,094.42 and Taiwan's weighted index gained 0.5% to 7,394.10, while Singapore's Straits Times fell 0.9% to 2,880.45.

India's 30-constituent Sensitive Index, or Sensex, plunged by 4.5% to 13,056.74 and the 50-stock S&P/CNX Nifty also slumped by 4.1% to 3,925.75.

Australia's S&P/ASX 200 shed 1.9% to 4,998.30, dropping below the 5,000-point mark for the first time since September 2006 as series of negative economic news hit the sentiment hard. Starting with activity in Australia's services sector which dived in June as high interest rates and record petrol prices hit consumer and business demand. The Australian Industry (Ai) Group-Commonwealth Bank Performance of Services Index (PSI) fell 4.3 points in June to 45.4, well below the 50 line marking the threshold between expansion and contraction.

In addition to this Australia's seasonally adjusted balance on trade in goods and services swung to deficit of A$965 million in May from a surplus of A$12 million in April. Giving some good news either, new vehicle sales in Australia jumped 6.3 % in seasonally adjusted terms in June, setting the seal on a record fiscal year for sales and suggesting consumers were proving resilient to record petrol prices.

Meanwhile, Indonesia’s Jakarta Composite closed with a fall of 3.9% to 2,286.61 on the screen as Bank Indonesia raised its key interest rate by 25 basis points, the third rate hike by the central bank in three consecutive months, to rein in soaring inflation. The Bank Indonesia i.e. BI rate now stands at 8.75 %, its highest level in 14 months.

According to Bank Indonesia's assessment, the country's consumer inflation is being driven by the impact of the fuel price hike in May. The central bank now expects year-end inflation to hit 11.5 percent to 12.5 percent, much higher than the initial estimate of 5-7 percent, he said.

Indonesia's annual inflation in June accelerated 2.46% - fastest pace since September 2006, driven by higher transportation costs after the government hiked subsidized fuel prices by an average of 28.7% in May. It was up 11.03% from a year ago.

In currency trading, the U.S. dollar bought 106.07 yen in Asia, compared with 106.115 late Wednesday.

On Wall Street, the Dow Jones Industrial Average ended 166.75 points down at 11,215.51 and the S&P 500 index fell 23.39 points to 1,261.52, while the Nasdaq Composite gave up 53.51 points to 2,251.46.

Moving towards European markets, which extended losses backed by gains from banks and miners. The U.K. FTSE 100 index rose 1.4% to 5,558.00, the German DAX 30 index climbed 1.2% to 6,393.55 and the French CAC-40 index advanced 0.8% to 4,376.32

For the region the day started with good news as Euro-zone retail sales rebounded more strongly than expected in May, as sales of nonfood items caused the measure to rise after a record drop on the year in April.

The volume of retail sales rose 1.2% on the month in May. On the year, retail sales rose 0.2% in May, after a record drop of 3.0% on the year in April. Meanwhile, the activity in the euro zone services sector contracted more sharply than previously estimated in June, slumping to its weakest level in five years. The RBS/NTS purchasing managers' index for the services sector slumped to 49.1 in June from 50.6 in May, marking the weakest reading since June 2003.

In UK construction industry continued to feel the bite of the slump in the housing market in the year to May. According to the figures released by office for National Statistics the new construction orders for May fell by 4 % compared May 2007.

Adding more concern was UK's services sector, which accounts for around two thirds of the entire economy, saw activity levels decline at their fastest rate in nearly seven years during June.

The Chartered Institute of Purchasing and Supply said its purchasing managers' index for the sector dropped to 47.1 in June from 49.8 in May. That was the fourth fall in a row and the lowest reading since October 2001, when the world economy was struggling in the wake of the terrorist attacks on the United States.

The German final purchasing managers' index for services came in at 52.1 points, down from 53.8 in May while the French services sector purchasing managers' index for June was revised up to 50.1 from a provisional figure of 49.2, and compared with a reading of 50.5 in May.

The day ahead features some of the most explosive events for the week. Going ahead we have Halfix house price index throwing some light on beleaguered housing market of United Kingdom. It will be followed by ECB interest rate decision followed by Trichet’s statement. In the evening we have series of data from U.S. Starting with average hourly and weekly earning accompanied by continuing and initial jobless claims. However the focus of the evening will be on non-farm payroll for June, which is expected to tank further. It will be accompanied by unemployment rate. In the late evening ISM will release is non-manufacturing indicator for June.

At the closing the time of closing this commentary, Brent North Sea oil for August delivery surged to a life-time peak of $146.34 as the secretary general of OPEC says its difficult to replace the crude output of Iran if the country was attacked.