Oil Rises For 3rd Day, Stagflation...

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[A man reads information on an electronic screen at a brokerage house in Shanghai. (Reuters/file) Oil prices rose on Monday spurred by brewing Middle East tensions, climbing near Friday's record high $142.99 a barrel and weighing on Asian stocks, which posted their worst first-half performance in 16 years. European stocks were expected to open lower across the board on fears inflation will gobble up returns. Financial bookmakers in London expected Britain's FTSE 100 index to open between 11 and 15 points lower, the German DAX 9 to 13 points lower, and the French CAC 40 14 to 15 points lower. The record breaking rally in oil prices has made stagflation -- quickening inflation combined with slowing economic growth -- a top fear for investors and is making analysts unhopeful about equity markets in the second half. Click On Oil Muddle: Full Coverage The MSCI index of shares in the Asia-Pacific region outside of Japan was down 0.2 per cent, near a three-month low plumbed on Friday. The broader pan-Asia index was largely unchanged. It is down around 14 per cent so far this year, the largest first-half drop since 1992 when Japan was in a recession. With the US dollar only able to muster a small gain in the last three months, energy markets have taken their cues from an escalating war of words between Israel and Iran, the world's fourth-largest oil exporter. Fears about dwindling oil supply were already heightened when Libya's most senior oil official said last week he was studying the possibility of cutting output in response to US threats to sue OPEC members. &quot;The US dollar is down and there are many high-level geopolitical news items, particularly in the Middle East, that are pushing prices up,&quot; said Mark Pervan, a senior commodities analyst at the Australian &amp; New Zealand Bank in Melbourne. &quot;Oil is now a very jittery and news-sensitive market that is running on rumours and concerns of future supply disruptions.&quot; Japan's Nikkei share average, which earlier this year was viewed as a relatively safe alternative amid rising global price pressures, sputtered in June with inflation in the world's second-largest economy at the highest in a decade and export demand uncertain. The index fell 0.5 per cent on Monday and chalked up its biggest first-half decline since 1995. The index has fallen 12 per cent since the start of the year. Hong Kong's Hang Seng index was essentially flat, with declines in some market heavyweights such as HSBC offsetting gains in resource-related shares. &quot;Stagflation Is Here&quot; For fund managers, risk reduction and safety were the keystones in the first half of the year. Equity capital outflows from developed markets around the world rose to $105 billion, a staggering nearly ten-fold increase over 2007 first-half outflows of $11 billion, EPFR Global, a Boston-based research firm, said. Emerging market stock funds also registered outflows, though mostly because of a big move out of Asia ex-Japan equity markets. First-half outflows from emerging market stock funds totalled $12 billion, compared with an inflow of $2 billion in the first six months of 2007. The US dollar slipped to a three-week low against the euro, weighed down by expectations the Federal Reserve will be reluctant to raise interest rates for now given continuing signs of a weak economy. In contrast, the European Central Bank is widely expected to be the first Group of Seven central bank to raise rates when it meets on Thursday. &quot;Stagflation is here,&quot; read the subject of a weekly report from JPMorgan asset allocation strategists. They said the near-term outlook for stocks and credit products has worsened though emerging market assets should outperform developed markets as long as policy makers in the region act in unison to counter inflationary pressures. &quot;Their reluctance to respond aggressively to the inflation threat now is eroding their credibility, raising the risk that they will have to move more abruptly next year, damaging their economies and local markets,&quot; the strategists said. The euro rose to a high of $1.5798 in early trading. The dollar was down 0.35 percent at 105.78 yen. US light crude for August delivery was up $1.75 at $141.96 a barrel, slightly below the record high of $142.99 struck on Friday. Crude has surged 48 percent so far this year, the largest first-half increase since 1999, even though global growth likely remains below its long-term trend. The spot gold price was up 0.1 per cent after hitting a one-month high on Friday. Gold rose to $928.10/929.10 an ounce after rising as high as $930.40 last week. (Reuters)