10:35 PM
By Saikat Chatterjee
HONG KONG | Wed Mar 2, 2011 12:24am EST
HONG KONG (Reuters) - Oil vaulted over $116 per barrel on Wednesday on concerns that escalating tensions in Libya would spread in the Middle East and disrupt fuel supplies.
Brent crude's dizzying 15 percent jump in less than two weeks has fanned worries about a stifling impact on the economic recovery, sending investors out of stocks into relatively safe assets such as gold and government bonds.
Though Asian stocks have reacted to swings in oil, markets have been largely resilient compared with January's selloff when investors dumped shares due to inflationary concerns.
While oil's jump has put monetary policy behind the curve in some countries, many central banks in Asia have already tightened considerably since the recovery began, so policy is not excessively loose in the region, IHS Global Insight said.
Shares in Tokyo .N225 and Hong Kong .HSI tumbled more than 1 percent following Wall Street's slide overnight and as the CBOE Volatility Index VIX .VIX, Wall Street's so-called fear gauge, jumped sharply.
Yahoo Japan (4689.T) was the notable outperformer with shares surging by 4.3 percent to 32,500 yen after sources said Yahoo Inc (YHOO.O) is in advanced talks to wind down its joint venture in Japan with Softbank Corp (9984.T).
"The market is volatile as oil's persisting gains and civil unrest in the Middle East is negatively affecting investor sentiment," said Lee Sun-yeb, a market analyst at Shinhan Investment Corp.
"But as long as we do not see the turmoil spreading to other countries within the region, current volatility will be contained and will eventually recover," Lee added.
The broader MSCI index of Asia ex-Japan stocks .MIAPJ0000PUS was down more than 1 percent, after a 2 percent fall in February.
Markets will keenly watch developments in the Middle East, especially Saudi Arabia, where stock markets tanked by nearly 7 percent on Tuesday and CDS spreads jumped.
GOLD, BONDS GAIN
U.S. Treasuries, a safe-haven asset, paused after recent hefty gains with ten-year yields stabilizing at 3.40 percent, well below a peak of 3.74 percent hit last month.
Japanese government bonds rose, with futures snapping a three-day losing streak..
Gold held just below a record high of $1,434 an ounce while spot silver hit a 31-year high..
In the currency markets, the euro dipped slightly after failing to break through a key resistance level, though further declines for the common currency may be limited a day before a European Central Bank meeting.
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