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Oil racks up more gains on US-Iran tensions, Asia markets dip

Fears of a conflict in the crude-rich Middle East ratcheted up Thursday when Tehran said it had shot down a US "spy drone" that was violating its airspace, which Washington denied.

A Total oil and gas exploration rig. Picture: Total Facebook page

HONG KONG – Oil prices rose again Friday, extending the previous day's surge on tensions between the United States and Iran, while Asian equities turned negative as investors took their foot off the pedal following a recent rally.

Fears of conflict in the crude-rich Middle East ratcheted up Thursday when Tehran said it had shot down a US "spy drone" that was violating its airspace, which Washington denied.

Donald Trump described the move as a "big mistake", adding: "This country will not stand for it".

The news - which comes a week after the US accused Iran of attacking two tankers in the Gulf of Oman - sent oil prices soaring more than six percent Thursday, while talk has increased of a military stand-off that could deal a massive blow to supplies.

Observers said the cost of crude could continue to rise.

"If we meld supply risk fear, a powerfully bullish narrative, (the Federal Reserve's) willingness to execute a pro-cyclical rate cut juicing risk assets and frame it with the potentially game-changing G20, you have the makings of a solid base for oil to shoot even higher," said Stephen Innes, managing partner at Vanguard Markets.

The focus is also on next week's planned meeting between Trump and his Chinese counterpart Xi Jinping on the sidelines of the G20 in Japan next week.

Trump's tweet about "a very good telephone conversation" between the pair this week fuelled a surge across global markets on hopes for a deal to end their countries' long-running trade war that has impacted the world economy.

However, Asia took a step back Friday, having been given an extra boost by the Fed indicating it will begin to cut interest rates soon, and other central banks erring towards softer monetary policies.

GOLD BREAKS $1,400

Hong Kong dipped 0.2% in the morning session, while Tokyo went into the break 0.2% lower.

Sydney slipped 0.3%, while Seoul and Singapore were each off 0.1% and Wellington was marginally down.

But Shanghai gained 0.5% and Taipei added 0.4%.

The recent rises were "built on the potential for monetary policy support from the Federal Reserve on one side, and the easing of trade tensions on the other", Alex Dryden, global market strategist at JPMorgan Asset Management, told Bloomberg TV.

However, he warned: "That is not the best basis for building an equity market rally in a sustainable manner."

The prospect of lower interest rates kept the dollar under pressure against its major peers as well as most higher-yielding currencies including the Chinese yuan, which is at levels not seen since mid-May.

A cheaper dollar and tensions in the Middle East have also ramped up demand for gold - seen as a go-to asset in times of uncertainty and upheaval - sending it above $1,400 an ounce for the first time since 2013.

"Gold jumped more than three percent on Thursday as the Fed left little doubt that an interest rate (cut) is coming and with trade and political tensions still at play the yellow metal was a clear choice for investors looking for a safe haven," said OANDA senior market analyst Alfonso Esparza.

Key figures around 0300 GMT

West Texas Intermediate: UP 38 cents $57.45 per barrel

Brent North Sea oil: UP 52 cents at $64.97 per barrel

Tokyo - Nikkei 225: DOWN 0.2% at 21,420.58 (break)

Hong Kong - Hang Seng: DOWN 0.2% at 28,501.20

Shanghai - Composite: UP 0.5% at 3,002.43

Euro/dollar: UP at $1.1302 from $1.1289 at 2130 GMT

Pound/dollar: UP at $1.2718 from $1.2702

Dollar/yen: DOWN at 107.17 yen from 107.27 yen

New York - Dow: UP 0.9% at 26,753.17 (close)

London - FTSE 100: UP 0.3% at 7,424.44 (close)

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