SINGAPORE (REUTERS) - Asian stocks rebounded on Thursday (Jan 9) and oil beat a retreat, as the United States and Iran backed away from the brink of further conflict in the Middle East and investors reversed their safety plays.
US President Donald Trump responded overnight to an Iranian attack on US forces with sanctions, not violence. Iran offered no immediate signal it would retaliate further to a Jan 3 US strike that killed one of its senior military commanders.
Japan's Nikkei index, which dropped 1.57 per cent on Wednesday, closed 2.31 per cent higher while the broader Topix index gained 1.63 per cent.
Australian shares closed at a record high with after Iran and US seemed to stand down, with the S&P/ASX 200 rising 0.8 per cent.
Singapore's Straits Times Index was up 0.09 per cent or 2.89 points to 3,248.78 just after the midday trading break.
The Shanghai Composite Index climbed 0.7 per cent while Hong Kong's Hang Seng Index advanced 1.3 per cent. South Korea's Kospi index added 1.2 per cent and Australia's S&P/ASX 200 Index rose 0.8 per cent.
"I think today is a bit of a relief rally," said Shane Oliver, chief economist at AMP Capital in Sydney.
"Yesterday, investors were fearing the worst, that this was the escalation now underway. The news overnight has been more along the lines that Iran pulled its punches and Trump is toning things down," he said. "Which is seen by investors as substantially reducing the risk of a war."
Investors quit the safe-haven Japanese yen, sending it sliding from a three-month high to a two-week low.
Oil now sits cheaper than it was before the killing of the Iranian commander, Qassem Soleimani, in Baghdad, a strike that raised fears of an escalating regional conflict.
Brent crude futures rose 43 cents, or 0.7 per cent, to US$65.87 a barrel by 0109 GMT, after seesawing through Wednesday . West Texas Intermediate futures added 61 cents, or 1 per cent, to US$60.22.
Gold gave back sharp gains made on Wednesday but remains dearer than before Soleimani's death in an indication that investors' fears have not completely evaporated. It last traded steady at US$1,556.98 per ounce, after hitting their highest since March 2013 at US$1,610.90 on Wednesday.
SANCTIONS NOT STRIKES
Iran fired missiles at military bases housing US troops in Iraq on Wednesday in response Soleimani's killing. But Trump said no Americans were hurt and made no direct threats of a military response in an address to the nation on Wednesday.
"Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world," he said. He announced economic sanctions on Iran without giving details.
Iranian Foreign Minister Mohammad Javad Zarif had earlier said the strikes "concluded" Tehran's response to the killing of Soleimani.
US stocks rebounded on Wednesday, led by the Nasdaq which added 0.67 per cent, while the Dow Jones Industrial Average and the S&P 500 each rose roughly half a percentage point.
US Treasuries, which had soared in the flight to safety a day ago also settled back, with yields on the benchmark 10-year US Treasury note at 1.8633 per cent, after dropping as low as 1.705 per cent.
The yen, which at one point on Wednesday traded at 107.63 per US dollar, yen was at 109.3, down 0.1 per cent.