Wednesday's quarter-point rate cut by the U.S. Federal Reserve played second fiddle to regional issues in Asian trading today, with markets ending mixed.

The lackluster close in Asian indices vs. Wall Street's big gains breaks a recent trend in which Asia has been closely tracking the U.S. markets.

The Hang Seng rose 140 points, or 0.45% to 31,492.88, while in China the Shanghai Composite Index dropped 40 points, or 0.68%, to 5,914 points after Beijing increased the retail price of fuel by 10%. The yuan continued to stay strong vs. the dollar, at 7.4552 yuan.

"Most of Asia is tightening through currency appreciation despite the fact that the Fed is cutting," says Silvia Liu, economist at Merrill Lynch in Hong Kong. "Inflation is picking up and growth remains incredibly strong."

In China, Beijing controls the price of fuel. Today's surprise increase, which is the first in 17 months, was a response to refiners' decreasing margins to due to high fuel prices.

The move comes despite previous statements by the Chinese government that they would remain pat on any price hikes, and many investors now expect an imminent rise in interest rates to counter inflation. Beijing usually raises interest rates on the weekend.

"The government had previously said the fuel price will remain stable because of inflationary problems that higher fuel would exacerbate, but refiners losses have racked up and the government has altered course," says Adrian Foster, head of capital markets for Dresdner Kleinwort in Beijing.

Oil rose to a record $96 in Asian trading.

Still, the price hikes and rise in oil were great news for petroleum companies, which led gains in Hong Kong and bucked the trend in China.

In Hong Kong, PetroChina ( PTR) gained 2.6%, to HK$19.90. The company's IPO in Shanghai is expected on Monday. Sinopec Shanghai Petrochemical ( SHL) rose 4.6%, to HK$6.41.

In Shanghai, Sinopec "A" shares rose 2.3%, to 19.64 yuan, while China Petroleum and Chemical Corp ( SNP)soared 7.32%, to 27.70 yuan.

In other blue chip trading, China Mobile ( CHL) ended flat, up 0.32%, to HK$157.50, while in Shanghai Aluminum Corp of China ( ACH) slipped 3.26%, to 48.06 yuan.

Still, money managers remained largely unconcerned by oil prices, since China's rise has paralleled the surge in the price of the black liquid.

"One has to look back a little in history," says Khim Do, who manages $18 billion for Asia Pacific Fund in Hong Kong. "The oil price went from the low 20s to over 70 in three and a half years. During that time China has gone from strength to strength."

"The reason is that petrol content as a share of the wallet has declined, while the services part has increased as a share of the wallet," he adds.

After opening at a record 2,084, the Kospi closed flat, down 1.71 points, or 0.08%, at 2,063 as the won continued to surge vs. the dollar and inflation figures were higher than expected.

The won was trading stronger by the end of Asian trading, to 901.55 won vs. the dollar from 903.55, hurting exporters like Posco ( PKX), which was surging last week. Posco shares dipped 2.8%, to 627,000 won.

Inflation in Korea was up 3% on the year in October vs. an expected 2.7%, and the fastest rate since August 2005. Trade surplus was also down on the month, to $2.2 billion vs. $2.35 billion in September.

Still, exports rose 24.2% on the year in October, their highest gain since November 2004, while exports to China gained 33.1% on the year.

Elsewhere in Asia, patterns were similar. In Thailand, inflation rose to 2.5%, higher than the expected rate of 2.1% and the country's fastest increase since January.

In Japan, the Nikkei gained 132 points, or 0.79%, to 16,870 points, while the Topix rose 15.71 points, or 0.9%, to 1,635 points, led by energy stocks like Nippon Oil, which leapt 4.15%, to 1,053 yen.

Exporters Sony ( SNE), Canon ( CAJ), and Honda ( HMC) rose as much as 3.36% on a weaker yen.

The carry trade is slowly regaining favor, as the yen has lost 1.5% this week vs. the dollar. At the end of Asia trading, the dollar was buying 115.79 yen vs. a low of 114.2 on Monday.

A weakening yen is usually seen as a bullish measure for Asian equities in general, since it signals investors are using cheap Japanese debt to buy up shares elsewhere in the region.

Asia Pacific's Do is bullish on Asia for the long term, and says that issues such as subprime lending have not affected the region at all.

"Although we watch the U.S. day-to-day, the medium term correlation between the U.S. and Asia is not that straightforward. The U.S. is up 10% this year, whereas in the case of Asia it's about 45%, so you feel there must be some kind of decoupling from the traditional point of view of the U.S. leading Asia ."

"There will be some unbelievable performances over the next six to twelve months," he adds.
Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at www.theglobalperspective.biz. He lives in New York.