Thursday, February 3, 2011

World stocks fall, crude surges on Egypt turmoil

World stocks fell and oil surged above $103 a barrel on Thursday as unrest in Egypt escalated, adding to concerns about inflationary pressures that could threaten the global economic recovery.
Gunmen fired on anti-government protesters in Cairo, where fighting killed six and wounded over 800 on Thursday in a fresh spike in violence over an unprecedented challenge to President Hosni Mubarak's 30-year-old rule.
Global food prices measured by the U.N. Food and Agriculture Organisation hit their highest level since records began in 1990. Rising food costs have been a key driver of the turmoil in Egypt and Tunisia that is threatening to spill over to other countries.
This is also encouraging investors to cut back on risky assets, especially after world stocks hit 29-month highs on Wednesday.
"Everybody is watching Egypt , we are looking at Yemen too," said Christophe Barret, oil analyst at Credit Agricole.
"Mainly, it's fear of contagion to other countries... I think prices above $100 for Brent are just not sustainable, it's something that has a very strong impact on the economy, a strong impact on demand."
Investors are also eyeing European Central Bank President Jean-Claude Trichet's news conference later in the day for further clues on how the bank plans to combat rising inflation.
The MSCI world equity index fell around 0.15 percent, with many Asian players away for the Lunar New Year holidays. The Thomson Reuters global stock index was down around the same amount.
The FTSEurofirst 300 index fell 0.4 percent while emerging stocks added 0.1 percent.
U.S. stock futures were down around 0.1 percent , pointing to a slightly weaker open on Wall Street later.
U.S. crude oil rose 0.7 percent to $91.54 a barrel while ICE Brent crude for March rose to as high as $103.37 a barrel, its highest since Sept. 26, 2008.
Fears have grown that unrest in Egypt and Tunisia could spread to other countries in the Middle East and threaten the region's oil exports.
And higher energy, food and other commodity prices are fanning concerns that the resulting inflationary impact -- not just in fast-growing emerging markets but also in developed economies -- would squeeze corporate profits and hit the global economic recovery.
Euro zone inflation rose to 2.4 percent in January, moving further above the ECB's target. A survey showed the euro zone's dominant service sector expanded much faster than initially thought in January, albeit with some divergences among member states.
JP Morgan expects a sustained 10 percent rise in oil prices would cut global gross domestic product by 0.25 percentage points.
Bund futures were steady ahead of Trichet's news conference.
Investors are looking for hints on when euro zone interest rates might rise, given Trichet's recent warnings on the need to tackle inflationary pressures.
The dollar rose 0.3 percent against a basket of major currencies while the euro lost 0.4 percent to $1.3751 , having hit a 12-week high of $1.3862 on Wednesday.

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