Anticipation of lower US rates weighed on short government bond yields, while a pullback in US crude from a record high of US$89 (S$130) a barrel also helped soothe worries that rising energy costs will crimp corporate profits.

Bets on a US rate cut grew after groundbreaking for new US homes and permits for future building both hit a 14-year low last month, while core US consumer inflation rose a modest 0.2 per cent.

At 10.17am, Tokyo's Nikkei average had climbed 0.8 per cent, while MSCI's measure of Asia Pacific stocks excluding Japan added 1.2 per cent to stand just a whisker away from its record high set a week ago.

TOKYO

Japanese share prices closed up 0.89 per cent on Thursday on bargain-hunting after the market fell to a two-week low on jitters about the health of the global economy, dealers said.

They said the benchmark Nikkei index regained the key 17,000 points level but that traders were keeping a close watch on soaring oil prices and the state of the United States economy after a mixed batch of economic indicators.

The Tokyo Stock Exchange's benchmark Nikkei-225 index of leading shares gained 150.78 points to 17,106.09, a day after sinking to the lowest close since Oct 1.

The broader Topix index of all first-section shares climbed 17.46 points or 1.09 per cent to 1,617.75.

HONG KONG
Hong Kong stocks rose on Thursday as investors bid up PetroChina and other China plays amid reports that China was studying the possibility of share swaps between stock listed domestically and in Hong Kong.

The prospect of such an arbitrage mechanism, if implemented, should narrow the discount of Hong Kong shares to their yuan-denominated counterparts listed in the mainland. Investors bid up China plays sharply at the open, but by midday, the market was markedly subdued.

'The arbitrage (talk) is overdone,' said Mr Andy Lam, strategist at Harris Fraser (International).

'It will happen, but not in the near future. There are lots of complications. The mutual transfer system is not ready in terms of currency and settlement.'

The benchmark Hang Seng Index had risen 1.1 per cent to 29,615 by lunch on mainboard turnover of HK$101.4 billion (S$19.1 billion), compared to Wednesday morning's HK$92.8 billion. The index shot past 30,000 at the open, but quickly retreated to levels below the key mark.

SHANGHAI
Chinese stocks tumbled more than 2 per cent on Thursday in response to news that Beijing was soliciting views on a plan to permit the exchange of shares listed in both the domestic stock market and Hong Kong.

Such a plan could drag down the prices of domestically listed shares by shrinking the vast premiums , now averaging 49 per cent, of A shares over Hong Kong-listed H shares.

Bank of Communications chairman Jiang Chaoliang, speaking on the sidelines of a Communist Party congress, said the plan was being studied and there was 'still quite a long way to go' before it might become operational.

Even if the plan goes ahead, capital controls mean it is unclear how widely the scheme would be used and how much impact it would have on the markets, fund managers and analysts said.

But they said the news was a strong signal that Chinese authorities wanted to cool the stock market, where the benchmark index soared as much as 129 per cent between the start of this year and an intra-day high on Tuesday this week.

'This is a very clear signal that the government wants the market to go down,' said Mr Liu Lifeng, fund manager at BOC International Holdings.

'A share swap, or even the likelihood of it, would be a big blow to the market as it means A shares, which are overvalued, would slump to the levels of H shares. Most institutions now expect the index to be soft in the medium term.'

He and others said that while it was too early to call an end to the long-term bull run of China's stock market, the index might not reach a fresh record high for at least a few months.

The Shanghai Composite Index ended the morning down 2.55 per cent at 5,882.553 points, near its intra-day low of 5,867.073. Losing Shanghai stocks outnumbered gainers by 624 to 221.

KUALA LUMPUR
The Kuala Lumpur Composite Index rose 4.2 points to 1,378.59 at the lunch-break. It opened 1.03 points higher at 1,375.42. -- REUTERS, AFP