SINGAPORE, March 21 - Oil prices rebounded from three-month lows on Friday, while the dollar and stocks were firm as U.S.-led forces raced across the Iraqi desert towards Baghdad and took their first casualties in a helicopter crash. Financial markets were in a holding pattern. Investors were torn between expectations the war could end swiftly and worries about possible torching of oil wells, terror attacks, chemical warfare or a worsening of the North Korean crisis.
"The risk of an upset in the war remains high," said Shane Oliver, head of investment strategy at AMP Henderson Global Investors. "After the sharp rebound in share markets, they are now more vulnerable to... setbacks in the near term. This all suggests we could be in for a volatile ride." Crude, which had shed a quarter of its value recently, rose on talk Iraq may have set fire to some oil wells. A correspondent reported towering flames and smoke visible from oilfields in southern Iraq, but it was unclear whether this was burning oil wells, normal flaring or the result of conflict. The dollar rose as U.S. and British armoured forces penetrated deeper into Iraq almost unopposed and the United States said it still hoped to topple Saddam Hussein without the force and fury of an all-out war. Stock markets in Asia were mostly higher, after overnight gains on Wall Street. Safe-haven gold and U.S. Treasuries edged up in Asia, in renewed anxiety about the war and its aftermath.
SADDAM IS KEY
The Washington Post reported on its Web site that Saddam, possibly with one or both of his sons, was inside a Baghdad compound when it was struck by a barrage of bombs and cruise missiles at the outset of the U.S. military assault. Intelligence analysts were not certain whether the Iraqi leader was killed or injured, or whether he escaped the attack. "The market is hesitating and waiting for news," said Y.K. Chan, strategist at Hong Kong's VC CEF brokerage. "What happens to Saddam Hussein is key, whether he surrenders or is killed." News on Friday that 16 British and U.S. soldiers were killed in a helicopter crash in Kuwait was the first report of casualties on the U.S.-led side since the war started. London's Brent crude rose 30 cents to $25.80 a barrel and U.S. light crude climbed 22 cents to $28.34.
"The market has now moved from a war premium to a victory discount," said oil analyst Simon Games-Thomas in Sydney. With Tokyo markets closed for the first day of spring and investors glued to news and television screens for clues on how the war is going, trading in Asia was muted on Friday.
DOLLAR'S LIMITED UPSIDE
Analysts said the dollar's three percent rise in 10 days against the yen showed the market has priced in the most optimistic scenario -- a short war that causes little damage to the U.S. economy, the world's largest. "Unfortunately, many things can go wrong during a war," said Lee Wee Kiat, treasury markets strategist at DBS Bank, saying market positioning now is fraught with danger. "At this juncture, the downside risk for the dollar could be unlimited, while the upside could be limited. Thus, it will not pay to establish excessive longs." At 0630 GMT, the dollar had risen to 120.42 yen , up from its late New York level of 120.25. The euro eased to $1.0597 from its late U.S. Thursday level of $1.0621. Stocks in Asia mostly edged higher, with the broad Morgan Stanley Asia Pacific index ex-Japan <.MSCIFEJ> up 0.18 percent. South Korean shares <.KS11> closed 1.29 percent higher, Australia <.AXJO> ended flat and Taiwan <.TWII> closed 0.27 percent lower. Singapore <.STI> was up 0.7 percent and Hong Kong was flat in afternoon trading. Airline and auto stocks led gainers with Qantas up 2.99 percent and Hyundai Motor <05380.KS> climbing 4.47 percent.
SAFE HAVENS RISE
U.S. Treasuries rose slightly on Friday, extending small gains overnight in light Asian trade. Treasury prices, which soared in the first 10 weeks of this year as the U.S. economy cooled, have slumped over the last 10 days as investors shifted money out of safe-haven bonds. "We've had the big unwind of the pre-war situation and we're now going to have a very volatile market for some weeks... depending on the news of the progress of the war," said Tony Pearson, head of market economics at National Australia Bank.
The benchmark 10-year note yielded 3.97 percent, down from Thursday's 4.04 percent high, but well above last week's four-decade low of 3.55 percent. Safe-haven gold rose to $334.50 an ounce in Asia from $332.50 in New York on pent-up demand and some expectations the war could produce a weaker U.S. dollar and economy. The war, launched after Saddam rejected Bush's ultimatum to leave Iraq, is the first under a new U.S. national security strategy that asserts Washington has the right to launch pre-emptive strikes on countries it deems a threat.//