HONG KONG - OIL prices on Wednesday slipped US$20 (S$27.16) below an all-time high hit two weeks ago, helping to lift Asian stocks and weigh on government bonds as investors cautiously reached for higher returns as well as more risk.

Crude was trading around US$128.38 a barrel after having closed on Tuesday at its lowest since June 5 partly on fears about waning US demand. That has in turn eased immediate concerns about the burden of high energy costs, though soft consumer demand continues to be a worry.

On the earnings front, with the results from some Wall Street banks not as dire as analysts had predicted, investors broadened their focus to other sectors, with announcements on Friday expected from Samsung Electronics Co Ltd and Honda Motor.

Japan's Nikkei share average rose 1.3 per cent to the highest in two weeks. If the index keeps its gains on the day, it will be the first time since April that the Nikkei has had back-to-back gains of at least 1 per cent.

Outside of Japan, shares in the Asia-Pacific region climbed 1 per cent to the highest in three weeks.

South Korea's Kopsi was up 1.6 per cent, led by gains in the world's fourth-largest steel maker Posco.

Despite investors' increasing willingness to buy riskier assets lately, high inflation continues to dangle a sword over Asia.

The combination of rising price pressures and slowing growth was a big factor in the nearly US$4 trillion in market capitalisation that has evaporated since November, Morgan Stanley said.

Not one-way rise for dollar

Underlying inflation in Australia was at the highest in almost 17 years in the second quarter, suggesting the central bank may have to keep interest rates where they are despite threats to growth.

Yields on safe-haven government bond yields, which move inversely to prices, edged higher as the MSCI all-country world equities index appeared poised for a sixth straight day of gains, the longest string since May.

The benchmark 10-year U.S. Treasury yield ticked up to 4.11 per cent, up a basis point from late on Tuesday in New York and 8 basis points higher on the year.

The 10-year Japanese government bond yield rose 3 basis points to 1.64 per cent.

The US dollar stayed firm, holding much of the ground gained against the euro and yen the previous day after Treasury Secretary Henry Paulson said a strong dollar was 'really very important,' a variation on his usual comments about the currency.

'The dollar broke through some key levels and has upside momentum,' said Mr Motonari Ogawa, director of forex trading at Barclays Bank in Tokyo. 'But Japanese exporter selling could emerge at these levels, and it won?t be a one-way rise for the dollar,' said Mr Ogawa.

The dollar was up 0.1 per cent at 107.32 yen The euro was little changed at US$1.57832 and flat against the yen at 169.38 not far from a record high 169.91 yen hit on Monday.

KUALA LUMPUR
The Kuala Lumpur Composite Index (KLCI) rose 17.92 points, or 1.62 per cent, to 1,127.49, at midday.

HONG KONG
At 10.13am Singapore time the Hang Seng Index was 1.6 per cent higher at 22,896.13 after opening at a five-week high.

The China Enterprises Index of top locally listed Chinese firms rose 2.1 per cent.

SHANGHAI
Most Chinese shares fell on Wednesday, led by coal and non-ferrous metals producers, but airline stocks surged, partly because of speculation about merger activity in the industry.

The Shanghai Composite Index ended the morning up 0.05 per cent at 2,847.581 points. Losing A shares in Shanghai outnumbered gainers by 575 to 321, while turnover in Shanghai A shares remained moderate at 33.8 billion yuan (S$6.79 billion) against Tuesday morning's 36.6 billion yuan.

TOKYO
Japanese share prices rose 1.01 per cent in morning trade on Wednesday after a late rally overnight on Wall Street sparked by a slide in oil prices and easing financial worries, dealers said.

The Tokyo Stock Exchange's benchmark Nikkei index gained 133.69 points to 13,318.65 by the lunch break. The broader Topix index of all first-section shares added 19.01 points or 1.48 percent to 1,306.75. -- AFP, REUTERS