SINGAPORE, March 28 - Oil prices rose on Friday to their highest levels since the start of the Iraq war on fears an extended conflict would exacerbate fuel shortages, while Asian shares dipped as a deadly virus hit airline stocks. The dollar firmed against the yen on speculation Japan's central bank was intervening to weaken its currency. But its advance was capped by worries an extended war would undermine the global economy's consumer and business confidence. "The initial rally on hopes for a shorter war has largely petered out, and investors will remain very wary of buying big blue chips in particular, until an exit to this war is visible," said Norihiro Fujito, senior equity strategist at Mitsubishi Securities.
After surging back above $30 a barrel on Thursday, oil prices jumped another one percent to hit their highest levels since the day before the war started on March 20. Rising fuel prices helped pull down shares in airlines, which are also grappling with reduced demand because of the war and a deadly virus that has hit travel to Hong Kong and Southeast Asia. Shares in Qantas Airways Ltd , Australia's largest airline, dived almost 10 percent as it warned the war and the virus meant it may not meet analysts' profit forecasts. The Tokyo stock market fell more than one percent, but losses on other markets were more modest. The dollar rose a quarter of a percent to a fraction above 120 yen. Gold firmed to $329.90 an ounce from $328.40 at the U.S. close and U.S. Treasuries inched up.
OIL SUPPLY FEARS
Oil has risen 14 percent this week on fears of tight supplies ahead of the U.S. summer vacation driving season, unwinding half of its fall of the previous week. The U.S. army warned on Thursday it would take several months to get Iraq's southern oilfields pumping again. At the same time, clashes between warring tribal factions in Nigeria have shut down 40 percent of oil output from Africa's biggest producer. "Market players are eyeing the supply-demand balance. Nigeria's snags appear to be pretty serious amid speculation for a longer war," said Hiromune Fujisawa, a trader at Nihon Unicom Corp in Tokyo. U.S. light crude for May delivery was up 39 cents at $30.76 a barrel after rising as high as $30.84. The rising cost of fuel for airlines has coincided with a fall in demand that has forced AMR Corp's American Airlines to consider filing for bankruptcy as early as next week. Shares in Japan Airlines System Corp <9205.T> fell almost five percent and Taiwan's Eva Airways Corp <2618.TW> tumbled almost seven percent. Hong Kong's Cathay Pacific Airways Ltd <0293.HK> was over two percent softer at the lunch break, while Singapore Airlines Ltd lost three percent.
Tokyo's Nikkei stock average <.N225> fell 1.1 percent to 8,280.16 as worries over the war flared. "The market factored in a 'short war' scenario and now it is unsure," said Koshi Kumagai, a senior fund manager at HSBC Asset Management. The Hong Kong <.HSI> and Singapore <.STI> markets fell about a third of a percent by midday and Taiwan <.TWII> closed 0.8 percent lower. But Australia <.AXJO> clawed 0.2 percent higher, and South Korea <.KS11> added 1.3 percent on a view that concerns over a lengthy war were already reflected in stock prices. The Dow Jones Industrial Average <.DJI> fell 0.35 percent to 8,201.45 on Thursday. The Nasdaq Composite index <.IXIC> slipped 0.23 percent to 1,384.25. The dollar rose against the yen amid growing speculation Japan wants to make sure the dollar is above 120 yen when companies close their books at the Japanese fiscal year-end on March 31. The U.S. currency was quoted around 120.23 yen against 120.00 in late New York trade. The euro was little changed at $1.0692 .//