Oil Prices Volatile With Us Debt Ceiling Concerns And Short-covering

SYDNEY, May 12 - Most Asian share markets were subdued on Friday and the dollar held onto its gains from safe-haven flows, after soft economic data from U.S. and China magnified concerns of a global slowdown, although Japanese stocks outperformed.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) slipped 0.2% and was headed for a weekly decline of 0.8%, weighed lower by a slew of data from China that pointed to a sluggish economic recovery after the lift of COVID lockdowns.

Japan's Nikkei (.N225), however, surged 0.8% to the highest level since November 2021, buoyed by strong earnings by Nissan (7201.T) and Honda (7267.T). Nasdaq futures rose 0.3% while the S&P 500 futures was 0.2% higher.

China's bluechips (.CSI300) eased 0.1% in early trade although Hong Kong stocks (.HSI) eked out a small 0.2% gain, helped by an 8% jump in the e-commerce giant JD.com (9618.HK) on its earnings beat and leadership changes.

China's economic recovery seems to be losing steam, with new bank loans tumbling sharply in April, consumer prices rising at the slowest pace in more than two years and imports unexpectedly contracting, driving a plunge in commodity prices from copper, iron ore to oil.

Overnight, data showed U.S. jobless claims jumped to a 1-1/2-year high last week, while producer prices rose at the smallest annual increase in more than two years, hinting at potentially more abrupt slowing in the world's largest economy.

The data added confidence that the Federal Reserve is almost certain to pause its rate hikes at its policy meeting in June, with futures markets continuing to price in cuts of about 78 basis points by the end of the year.

"It's sort of a messy background for share markets and investment markets," said Shane Oliver, chief economist AMP in Sydney, noting the weaker global growth and return of bank worries.

"The silver lining in the cloud is inflationary pressures are diminishing, which takes the pressure off central banks, notwithstanding the Bank of England continuing to hike."

Banking fears reverberated overnight. PacWest (PACW.O) again led declines in regional banks with a sharp fall of 23% overnight, after it reported its deposits fell 9.5% last week.

Shares of U.S. big banks were also lower after U.S. Federal Deposit Insurance Corporation (FDIC) said big lenders would bear the cost of replenishing its deposit insurance fund caused by recent bank failures.

That pulled the Dow (.DJI) lower, although Nasdaq (.IXIC) added 0.2%, supported by a 4.3% jump in Alphabet Inc (GOOGL.O) on its rollout of more artificial intelligence products.

The uncertainty around raising U.S. debt ceiling lingers. A meeting between U.S. President Joe Biden and top lawmakers that had been scheduled for Friday has been postponed to early next week, with the IMF warning that a U.S. default would have "serious repercussions" for the U.S. economy.

The U.S. dollar benefited from safe-haven flows amid growth concerns and banking worries, holding onto its 0.6% gain overnight at 102.05 against a basket of currencies.

The Chinese yuan hovered near its lowest level in two months at 6.948 per dollar, while Sterling nursed losses close to a one-week low of $1.2515.

Treasury yields were slightly lower in Asia after longer-dated yields declined further overnight on soft data. Benchmark 10-year notes were 2 basis points lower at 3.373%, while two-year yields were 3 bps lower at 3.876%.

The Bank of England stuck to the script by raising its key interest rate by a quarter of a percentage point to 4.5% on Thursday. It, however, vowed that it would "stay the course" to curb the highest inflation of any major economy.

Oil was licking wounds after taking a hit on China. U.S. crude futures edged up 0.1% to $70.96 per barrel, while Brent crude was little changed at $74.97 per barrel.

Gold prices were 0.2% lower at $2012.12 per ounce.