BANGKOK, Thailand — Asian stock markets had a strong, if volatile, year with China leading the pack as investors bet on the region's continued growth prospects.

Several exchanges notched gains of more than 20 percent and among Asia's major markets, only Japan and New Zealand ended the year with losses.

But the outlook for 2008 remained clouded by soaring oil prices, accelerating inflation in both China and India, and above all, the health of the U.S. economy.

"More will be revealed after one or two months of data on the U.S. side to see what's the state of the U.S. economy, especially the consumer spending," said Song Seng Wun, chief executive of CIMB-GK Research Pte. Ltd. in Singapore.

"If (the U.S. economy) can hold, then we should be reasonably intact," Song said.

The Shanghai Composite Index climbed 96.7 percent on the year, the world's best performing major bourse for 2007. Japan's Nikkei 225 fell 11.1 percent and the benchmark NZX-50 in New Zealand fell 0.3 percent.

Elsewhere, Jakarta's JSX index gained 52.1 percent, the Bombay Stock Exchange's Sensex index rose 47.1 percent and Hong Kong's blue chip Hang Seng rose 39.3 percent.

Other large gains were made in South Korea and Malaysia, where the benchmark indices rose almost a third since the last trading day of 2006. The main indices in Singapore and Australia gained 16.6 percent and 11.8 percent, respectively, for the year.

Most benchmarks recovered from midyear dips that followed a wave of defaults on risky loans made in the U.S. housing market. Banks, including Citigroup Inc., Merrill Lynch & Co. and JPMorgan Chase & Co., invested heavily in mortgage-backed securities and lost billions.

As the subprime damage spread to Europe and Asia, banks around the globe became more wary about lending money, which sparked concerns about slowing business investment and growth.

On Friday, a report from Goldman Sachs said mortgage-related writedowns at U.S. banks may deepen, helping to send several markets lower on their last trading day of 2007 and fostering broad pessimism about the U.S. economy next year.

In addition, oil prices that looked as if they had given up on their chase for the $100 mark are now back above $96 a barrel, raising new concerns about their impact on growth.

Oil prices and the unfolding credit crisis in the United States have extensive ramifications in Asia, which depends on exports to the world's largest economy for growth. The U.S. is the world's largest consumer of oil. In addition to cutting the buying power of the American consumer, rising energy costs can cut into industrial demand.

"We will remain hostaged by what's happening overseas, particularly in the U.S. economy ... and also oil prices," said Astro del Castillo, managing director of Philippines-based brokerage First Grade Holdings.

"Those are the two major factors that will influence not only the (Philippines) market but also most economies as well," he said.

Asian markets were roiled in their last two days of trading for the year by the assassination of Pakistani opposition leader Benazir Bhutto.

Pakistani stocks suffered their biggest one-day loss ever Monday. The Karachi Stock Exchange's benchmark 100-share index plunged 694.92 points, or 4.7 percent, to 14,077.16.

The KSE 100 index still finished the year 40 percent higher than at the end of 2006.

Analysts continue to be cautiously optimistic about Asian economies, primarily based on the performance of economic engines running full-tilt in China and India.

Once worry about the credit crisis and its impact on the U.S. and global economies dissipates, many analysts say funds will resume their flow to Asian stock markets. "Most Asian markets are still moving higher as can be seen by our economic performance. Hopefully (fund managers) will be attracted by such," said del Castillo.

The outlook for the broader region next year appears promising, agreed Park So-yeon, a strategist at Korea Investment & Securities Co. in Seoul. The Kospi — South Korea's main stock benchmark — was unlikely to match this year's performance in 2008, though sectors with China exposure were likely to remain strong, she said. Continued demand for commodities in China and India is likely to fuel growth, she said.

Make a difference. Donate to The Advertiser Christmas Fund.