GLOBAL MARKETS-Oil climbs again on Libya fears, denting equities

GLOBAL MARKETS-Oil climbs again on Libya fears, denting equities
Wed Mar 9, 2011 4:44pm GM 
 Brent jumps 1.6 pct on Libya, lack of OPEC action

* Portugal sells bonds, long-term financing worries remain

* US, European stocks fall on rising oil prices (Updates with U.S. markets open; changes byline; dateline previously LONDON)

By Walter Brandimarte

NEW YORK, March 9 (Reuters) - Oil prices resumed their rise on Wednesday as violence continued to threaten Libya's oil infrastructure, driving down world equities and stoking demand for gold.

U.S. Treasuries also rose on a safety bid after the sale of Portuguese debt at unsustainable high yields.

Brent oil prices LCOc1 jumped more than 2 percent to $115.50 a barrel as fighting in Libya intensified and OPEC saw no need for an emergency meeting to consider raising oil output. Worries that the unrest could spread into the Middle East also left investors jittery.

"It's a fear trade," said Michael Hewson, an analyst at CMC Markets. "It's about the fear of these troubles escalating -- there is some concern about how the Saudi Day of Rage will go on Friday 
Activists in Saudi Arabia have set up Facebook pages calling for protests on March 11 and 20.

Expectations that the Organization of the Petroleum Exporting Countries would respond to the decline in Libya's output by rising production had driven oil prices lower on Tuesday, one day after they hit a 2-1/2-year high.

In New York, however, U.S. crude oil futures CLc1 reversed earlier gains on Wednesday as investors eyed a greater-than-expected rise in U.S. stockpiles last week. Oil in New York was down 0.4 percent at $104.60 a barrel.

The rise in oil prices renewed fears that the economic recovery could suffer, driving down equities in both the United States and Europe.

The Dow Jones industrial average .DJI fell 27.24 points, or 0.22 percent, to 12,187.14, while the Standard & Poor's 500 Index .SPX was down 6.10 points, or 0.46 percent, at 1,315.72. The Nasdaq Composite Index .IXIC declined 19.82 points, or 0.72 percent, to 2,745.95.

The FTSEurofirst 300 .FTEU3 index of top European shares was down 0.22 percent at 1,144.95 points after rising to a high of 1,153.62 earlier in the session.


Prices of U.S. government bonds rose as investors moved to safe-haven assets after an auction of Portuguese debt reminded them of the financial troubles of peripheral euro zone countries.

Benchmark 10-year U.S. Treasury notes US10YT=RR rose 5/32 in price, with the yield at 3.5271 percent. Prices were also supported by the Federal Reserve's planned purchase of between $5 billion and $7 billion in notes maturing 2015 and 2016 
Portugal was able to sell 1 billion euros in two-year bonds at an auction, but its cost of borrowing was the highest since it joined the euro. Lisbon said such yields were unsustainable in the long run without Europe-wide action.

"The auction was always going to go OK... but I don't think clients are particularly interested in buying the bond," said a trader in London. "The problems remain -- we've got the the March 25 summit coming up, we've got continued selling in Greece."

Euro zone leaders meet ahead of the summit on Friday. The bloc's 17 heads of state are expected to agree the next cautious steps in their year-long effort to quell the region's debt crisis but the meeting is unlikely to produce a breakthrough. [ID:nLDE7270VF]

Meanwhile, the euro fell from an earlier high and traded slightly higher against the dollar as expectations of a euro-zone interest rate hike next month faded somewhat.

Investors worry that a monetary policy tightening by the European Central Bank would raise borrowing costs even higher for peripheral euro zone economies.

The European single currency EUR= was up 0.12 percent at $1.3919, falling from an earlier four-month high of $1.4036 on electronic trading platform EBS.

Gold rose as the violence in North Africa and the Middle East stoked safe-haven demand and on worries over euro zone debt.

Spot gold XAU= was bid at $1,432.20 an ounce at 1511 GMT, against $1,428.19 late in New York on Tuesday. U.S. gold futures for April delivery GCJ1 rose $5.50 an ounce to $1,432.70.

Copper fell as the strengthening crude oil prices fueled worries that inflationary pressures could hit economic growth and demand.

Copper for three-months delivery CMCU3 on the London Metal Exchange traded at $9,418 a tonne by 1502 GMT, down from a close of $9,530 a tonne on Tuesday.

"There's huge uncertainty as to what's going on," said Daniel Brebner, an analyst at Deutsche Bank. "You've got oil prices now coming back up," he added. "It's risky, to say the least." (Additional reporting by Kirsten Donovan, Karen Brettell, Edward Krudy, Claire Milhench; Editing by Leslie Adler)