Gold hits record, oil jumps with Libya unrest

Traders work in the oil options pit on the floor of the New York Mercantile Exchange in New York, February 24, 2011.

NEW YORK (Reuters) - Gold rose to an all-time high on Tuesday as investors fled risky assets amid escalating violence in Libya, and oil prices jumped to their highest in 2 1/2 years.

Oil's surge, which fanned worries about a dampening effect on the economic recovery, pushed investors out of stocks. U.S. Treasuries, also a safe-haven asset, rose.

Major U.S. stock indexes dropped more than 1 percent, and the CBOE Volatility Index VIX .VIX, Wall Street's fear gauge, jumped 13.3 percent.

"From the start of crude oil's ascent based on Libya, you are seeing general risk issues become more of a front burner in peoples' psyche," said James Dailey, portfolio manager of the TEAM Asset Strategy Fund.

Unrest in the Middle East and North Africa has driven gold and oil prices up sharply in the past month. The turmoil has unseated leaders in Tunisia and Egypt, and more recent chaos in Libya has sparked concern the unrest will engulf other oil producers in the region.

Spot gold was last up 1.4 percent at $1,430.75 an ounce, and earlier hit an all time-high at $1,432.10. Gold was up 6 percent in February.

In London, ICE Brent for April delivery settled at $115.42 a barrel, rising $3.62. It was the highest settlement since August 27, 2008, when front-month Brent crude oil futures closed at $116.22.

High oil prices are "essentially a huge tax on consumers, who make up two-thirds of the (U.S.) economy. So there's no way (gross domestic product) won't suffer on this," said Scott Armiger, portfolio manager at Christiana Trust in Greenville, Delaware, which has $6.8 billion in client assets.

In the U.S. stock market, the Dow Jones industrial average .DJI fell 168.32 points, or 1.38 percent, to end at 12,058.02. The Standard & Poor's 500 Index .SPX was down 20.89 points, or 1.57 percent, at 1,306.33. The Nasdaq Composite Index .IXIC was down 44.86 points, or 1.61 percent, at 2,737.41.

Federal Reserve Chairman Ben Bernanke, in testimony to the U.S. Senate Banking Committee, said higher oil prices were unlikely to have a big impact on the U.S. economy but could lead to weaker growth if sustained.

World equities, measured by the MSCI All-Country World Index .MIWD00000PUS, fell 0.6 percent. The index had gained 2.8 percent in February.

Benchmark 10-year U.S. Treasury notes reversed early losses to trade up 6/32, their yields at 3.39 percent from 3.43 percent late on Monday.

The retreat from risk drove down the price of copper, a bellwether of economic health due to its extensive industrial uses. London Metal Exchange copper for three-month delivery closed ring trading down $25 at $9,860 a tonne, but prices returned to positive territory in after-hours trade.

Treasury Department data showed that China held $1.16 trillion in U.S. government debt in December, the most recent month for which figures are available, up from prior estimates of $892 billion.

The data showed China may have more potential than ever to influence U.S. debt prices, analysts said.

Also rising later in the U.S. session was the dollar. It recovered from a 3-1/2-month low against a basket of other major currencies, with the euro again failing to breach resistance at its 2011 high.

The dollar index .DXY, which tracks the greenback's performance against a basket of major currencies, fell to 76.735, its weakest level since early November, before recovering to 77.053, up 0.2 percent from the prior close.

In the European stock market, the FTSEurofirst 300 .FTEU3 index of leading European shares was down 0.6 percent at 1,161.92.

(Additional reporting by Karen Brettel, Frank Tang, Angela Moon and Gene Ramos; Emelia Sithole-Matarise and Harpreet Bhal in London; Editing by Kenneth Barry)