Gaza violence lifts oil; global stocks mixed

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(Agencies)
Updated: 2008-12-30 07:47

NEW YORK - Violence in the Middle East drove up the price of oil on Monday on worries about threats to crude supplies and fueled a bid for safe-haven government debt.

U.S. stocks fell as Kuwait's decision to scrap a $17.4 billion joint venture with Dow Chemical highlighted fears about the global economy, even as the higher oil prices drove up energy shares.

"What stocks are grappling with is discounting how long, how deep of a recession this is going to be and when the sun is going to go up again," said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland.

"That clearly drove the decision," he added, of Kuwait's decision to cancel the Dow Chemical deal.

Bargain hunting helped pull the dollar up from its earlier lows. Thin holiday conditions exaggerated price movements.

European stocks closed higher on advances in energy and banks, while Japanese stocks gained after reports of a potential merger of three insurance companies.

Concerns that the violence in the Middle East, as Israeli warplanes pounded the Hamas-ruled Gaza Strip for a third consecutive day on Monday, might impact oil supplies sent U.S. light sweet crude oil up $2.31, or 6.13 percent, to settle at $40.02 per barrel.

"Most commentary blames the conflict in Gaza between Hamas and Israel," Mike Fitzpatrick, vice president at MF Global, said in a report. "Certainly, oil prices remain sensitive to geopolitical developments, ... but the declining dollar, low volume and the return of bargain hunting Europeans are probably more to blame."

A weaker U.S. dollar contributed to buying of oil and gold in Asia and European trading hours. But bargain hunting and the break of a key support level spurred dollar buying.

"When we hit $1.40, that sort of opened the floodgates. It's all basically technical in nature and nothing fundamental," said Brian Dolan, chief currency strategist, at Forex.com in Bedminster, New Jersey.

The dollar rose against a basket of major trading-partner currencies, with the U.S. Dollar Index up 0.39 percent at 81.286 from a previous session close of 80.970.

The euro fell 0.65 percent at $1.397. Against the Japanese yen the dollar lost 0.10 percent at 90.60.

After shedding more than 2 percent of its value against the Swiss franc, the dollar recouped some of its losses to be down 0.84 percent at 1.0585 francs.

Sterling, however, fell 1.37 percent against the U.S. dollar to $1.4446. The British pound also fell to a record low against the euro of 97.99 pence, as it approached parity for the first time since the euro was launched in 1999.

The slide in the pound came after reports pointed to a further slide in UK home prices in 2009.

GLOBAL STOCKS MIXED

In U.S. stocks, Kuwait's decision to end a petrochemical joint venture with Dow Chemical heightened worries about the global economy as Kuwait cited falling petrochemical sales and the global financial crisis. The decision also ignited worries that Dow, the largest U.S. chemical company, would not be able to complete its planned purchase of rival Rohm & Haas.

The Dow Jones industrial average fell 31.62 points, or 0.37 percent, at 8,483.93. The Standard & Poor's 500 Index lost 3.38 points, or 0.39 percent, at 869.42. The Nasdaq Composite Index declined 19.92 points, or 1.30 percent, at 1,510.32.

Dow Chemical's stock plunged 19.0 percent to $15.32 while Rohm & Haas tumbled 16.1 percent to $53.34.

Energy companies gained with the higher oil prices.

Chevron rose 1.7 percent to $71.55 while Exxon Mobil gained 1.1 percent to $78.02.

In Europe, gains in energy shares helped the FTSEurofirst 300 index of top European shares closed up 0.83 percent to 810.37.

BP, gas producer BG Group and Tullow Oil added between 3.6 and 3.4 percent.

European banking and pharmaceutical shares also rose.

Earlier in Japan, the Nikkei average ended up 0.1 percent, helped by news that three non-life insurers including Mitsui Sumitomo Insurance Group Holdings were in talks to merge.

U.S. Treasuries were broadly higher. The benchmark 10-year U.S. Treasury rose 10/32 of a point in price, pushing the yield down to 2.09 percent. That is not far above a 50-year nadir of 2.04 percent reached on December 18.

"The escalation of violence in the Middle East has added to the safe-haven bid tone in Treasuries," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.

On euro zone government bond markets, the interest rate-sensitive two-year Schatz yield plumbed another record low of 1.710 percent. Lond-dated Japanese government bond yields touched five-year lows.

Spot gold prices rose $9.95, or 1.15 percent, to $877.60