Oil prices steadied this morning after falling sharply on a big fuel price rise in China, which could depress demand for crude there, but Asian stocks benefited from the prospect of lower costs for firms.
The dollar held steady against the yen, hovering within sight of a four-month high after rising the previous day due to the drop in oil prices.
Chinese stocks stood out, jumping 6 per cent, with heavyweight refiners leading gains. Sinopec and PetroChina both rose 6 per cent as higher gasoline prices were expected to boost their profit margins.
US July crude fell nearly $5 yesterday after the fuel price announcement late in the day in China, settling at $131.93 a barrel. In Asian trading today it went as low as $131.19 before steadying around $132.
Soaring oil prices this year have fanned worries about inflation and global economic growth.
China raised retail gasoline and diesel prices by up to 18 per cent yesterday to temper demand, at the risk of stoking domestic anger over inflation, already at a decade high.
It joined a long list of Asian countries, including Indonesia and India, that have bowed to the pressure of record high oil prices by scaling back subsidies and raising fuel prices.
The MSCI index of stocks in the Asia-Pacific region outside of Japan rose 0.6 per cent today, paring the previous session's losses, but the index is still down 15 per cent so far this year.
Hong Kong jumped 2.3 per cent, South Korea's KOSPI added 0.1 per cent and Singapore's Straits Times Index rose 1 percent.
But the picture was still gloomy in Japan where the Nikkei share average fell 0.9 per cent, dented by Inpex Holdings and other oil-related shares, which tracked lower oil prices. The Nikkei extended the previous session's 2.2 per cent decline.
US stocks ended higher yesterday on hopes falling crude prices would ease inflationary pressures and support consumer spending.
However, in a report that underscored the economy's weakness, output in US Mid-Atlantic factories pulled back for the seventh straight month as costs shot up to a 28-year high.
The dollar stood at 108.08 yen today, steady from late US trading yesterday and close to a four-month high of 108.59 yen hit on trading platform EBS on Monday.