Global Markets: Oil, gold gain on Libya; U.S. stocks end higher

By Caroline Valetkevitch

A rebel holds his ears as a bomb launched by a Libyan air force jet loyal to Libya’s leader Muammar Gaddafi explodes in the desert near Brega, March 2, 2011. REUTERS/Joel Silva/Folhapress

NEW YORK (Reuters) – Brent crude oil prices rose Wednesday as news of an airstrike in Libya near an oil terminal spurred supply worries, while investors’ flight to safety drove gold to a record high.

World stocks dipped, while Wall Street stocks advanced. U.S. economic data, including a Federal Reserve report saying the U.S. economy has slowly gained strength this year, helped to offset worries that higher oil prices will dampen growth.

Oil prices jumped to approach 2-1/2-year highs on news that airstrikes hit Brega about 1.2 miles (about 2 kilometers) from a Libyan oil terminal, after Libyan leader Muammar Gaddafi launched land and air offensives to retake territory in Libya’s eastern region.

Investors are worried that political instability could spread to major oil producer Saudi Arabia, a central U.S. ally in the region, and other oil suppliers.

“The (stock) market is slowly adjusting to the new environment (of high oil prices) and beginning to realize that there is no short-term solution to this, that we are going to live with this uncertainty for a some time,’’ said Robert Lutts, chief investment officer at Cabot Money Management in Salem, Massachusetts.

At its intraday peak, Brent crude for April delivery traded at $117.81 a barrel.

Gold climbed to an all-time record at $1,440.10 an ounce. The metal has rallied 10 percent since late January when tensions first began to flare in the Middle East and Africa.

The MSCI world equity index dipped 0.2 percent and was off about 2 percent from a 30-month peak set in February. The index is still up about 3.5 percent since the start of the year.

U.S. stocks rose after the Fed’s Beige Book showed the U.S. economy was slowly gaining strength in 2011. The Fed noted that manufacturers and retailers had been able to increase some of their prices.

Data showed U.S. private-sector employers added more jobs than expected last month, which investors saw as a positive sign ahead of the more closely watched U.S. government’s monthly jobs report, due Friday.

The Dow Jones industrial average rose 8.78 points, or 0.07 percent, to settle at 12,066.80. The Standard & Poor’s 500 Index gained 2.11 points, or 0.16 percent, to end at 1,308.44. The Nasdaq Composite Index advanced 10.66 points, or 0.39 percent, to settle at 2,748.07.

The day’s rally was broad, with eight out of 10 S&P 500 sectors ending higher. Sectors sensitive to energy gained, including industrials , up 0.4 percent, and materials , up 0.2 percent. An index representing the S&P infotechnology sector rose 0.5 percent.

DANCE OF OIL, DOLLAR AND STOCKS

As investors made their flight-to-safety bids, the dollar fell to a record low against the Swiss franc. U.S. Treasury debt prices declined.

“There is still a lot of risk aversion. I think the big focus right now is what’s going on with the Middle East, North Africa and oil,’’ said Igor Cashyn, interest rate strategist at Morgan Stanley in New York.

Equities have had a strong inverse relationship with oil in the past several weeks on concerns that rising prices could slow economic growth.

“There is an increasingly strong correlation between equities and oil,’’ said John Brady, senior vice president at MF Global in Chicago.

The FTSEurofirst 300 index of top European shares slid 0.7 percent to close at 1,153.73 on fears that skyrocketing oil prices could drastically curb or halt growth.

SAUDI ARABIA ON OUR MINDS

Forces loyal to Muammar Gaddafi launched a major offensive against rebels in eastern Libya, sparking a rebel warning that foreign military help might be needed to “put the nail in his coffin’’ and end Gaddafi’s long rule. :

Saudi Arabia’s stock markets declined for a 13th session and hit a 22-month low, while Dubai equities fell to a 6-1/2-year low, reflecting investors’ worries over planned protests in Saudi Arabia.

Saudi Arabia’s benchmark stock index fell nearly 4 percent at one point to a fresh 22-month low.

Brent crude for April delivery rose 93 cents to settle at $116.35 a barrel on Wednesday — the highest settlement since Aug. 21, 2008.

U.S. crude for April delivery jumped $2.60 to settle Wednesday at $102.23 a barrel, the highest since front-month crude ended at $106.89 on Sept. 26, 2008.

EYES ON EUROPEAN RATES AND U.S. JOBS

The Swiss franc soared to a record high versus the dollar .

The euro climbed as high as $1.3890 on trading platform EBS, its strongest level since Nov. 9, with investors looking ahead to the European Central Bank’s policy-setting meeting on Thursday. The expectation is growing that interest rates will rise in Europe before doing so in the United States.

The benchmark 10-year U.S. Treasury note was down 21/32, its yield at 3.47 percent, up from 3.40 percent on Tuesday. The economic news helped to overshadow turmoil in oil-producing regions.

Economists polled by Reuters forecast Friday’s nonfarm payrolls report for February will show a rise in private- sector payrolls of 190,000 and a rise of 185,000 in overall nonfarm payrolls.

(Reporting and writing by Caroline Valetkevitch; Additional reporting by Angela Moon, Karen Brettell and Wanfeng Zhou; Editing by Jan Paschal)

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