Stocks fall as Libya drives oil, gold higher

Visitors are seen in front of an electronic board showing stock prices at the Tokyo Stock Exchange in Tokyo February 22, 2011.

NEW YORK (Reuters) - Global stocks fell on Monday as the growing violence in Libya and worries about other Middle Eastern countries drove prices of oil and gold higher, raising concerns about the global economic recovery.

Oil jumped to a 2-1/2-year peak while gold hit a record high as fighting escalated around one of Libya's key oil ports. Prices of both retreated later on talk that Libyan leader Muammar Gaddafi was trying to negotiate his exit from the country.

Also weighing on U.S. stocks was a Wells Fargo downgrade of the semiconductor sector, which has been leading a rally on Wall Street since the beginning of September. Asian stocks looked set to open lower, with Nikkei futures traded in Chicago falling 1.9 percent to 10,450.00 points.

The euro was little changed against the dollar, after reaching a four-month high against the U.S. currency, as expectations of an interest rate hike by the European central bank faded. Resurging debt concerns triggered by a Moody's downgrade of Greece also weighed on the European currency.

Brent crude oil futures jumped to their highest level since September 2008 before finishing 0.8 percent lower, at $115.04 per barrel, as investors took the opportunity to pocket some profits.

U.S. crude futures, however, closed up 0.98 percent at $105.44 a barrel after trading as high as $106.95, also the highest level since September 2008.

"The major risk remains the prospect of the political unrest spreading to the Gulf-producing region," said Caroline Bain, economist at the Economist Intelligence Unit. "However, even if there is civil unrest in Saudi Arabia, it is not a given that oil production will be affected."

The prospects of further unrest in oil-rich Middle Eastern countries drove investors to seek safe-haven assets. Spot gold prices hit a record high of $1,444.40 an ounce while silver rose as high as $36.52 an ounce, its highest since early 1980, before both retreated along with oil prices in the afternoon.

Gold prices, however, are seen resuming their climb.

"With all the problems in Africa and the Middle East, we are likely to see huge price spikes and high volatility. I don't see that changing anytime soon," said Bruce Dunn, vice president of bullion dealer Auramet Trading.

On Wall Street, technology shares led losses after Wells Fargo downgraded the chip industry to "market weight" from "overweight," saying the sector will grow moderately in 2011 compared with the past two years.

The Dow Jones industrial average .DJI closed down 79.85 points, or 0.66 percent, at 12,090.03, while the Standard & Poor's 500 Index .SPX fell 11.01 points, or 0.83 percent, to 1,310.14. The Nasdaq Composite Index .IXIC lost 39.04 points, or 1.40 percent, to 2,745.63.

In Europe, the FTSEurofirst 300 index .FTEU3 of top shares closed 0.41 percent lower.

MSCI's All-Country World Index of global stocks .MIWD00000PUS fell 0.69 percent while its emerging market benchmark .MSCIEF slid 0.57 percent.

"There are still problems in Libya and there are concerns the oil price might curb economic recovery, " said Heino Ruland, strategist at Ruland Research in Frankfurt. "I think investors will continue to reduce exposure to their risk profile."

PORTUGUESE YIELDS HIT RECORD HIGH

Refinancing costs of peripheral euro-zone countries rose after Moody's slashed its rating on Greece by three notches, signaling more downgrades in the near future.

Portuguese 10-year yields rose to a euro lifetime high of 7.65 percent, also pushed higher by a government debt sale later this week.

Scheduled sales of $66 billion in U.S. government debt this week also weighed on U.S. Treasuries prices. The 30-year bond lost 13/32 in price while its yield climbed to 4.6219 percent.

The euro was little changed at $1.3972 after earlier reaching a four-month high of $1.4036 on electronic trading platform EBS.

The European single currency had been strengthening since ECB President Jean-Claude Trichet surprised investors last week by saying that euro-zone interest rates may rise as early as next month.

(Additional reporting by Rodrigo Campos, Chris Reese, Nick Olivari; Editing by Leslie Adler)