GLOBAL MARKETS-Oil surges, demand for gold, dollar up on Syria worry
* Brent crude hits 6-month high as West readies Syria strike
* Dollar gains as Syria worries trigger safety bid
* Wall St higher after sharp selloff
By Angela Moon
NEW YORK, Aug 28 (Reuters) - The possibility of a U.S.-led military strike on Syria hit emerging market assets hard on Wednesday and pushed oil prices to a six-month high while triggering a safe-haven run to gold and the dollar.
Oil prices surged. Brent crude hit a six-month high of $117.34 a barrel on fears Western countries were preparing to attack Syria, raising concerns over the security of oil supplies across the Middle East, which pumps a third of the world's oil.
French bank Societe Generale said Brent could spike to $150 if the conflict in Syria spreads and disrupts supply in the region. Syrian oil output is not a factor: it has fallen to 50,000 barrels per day from around 350,000 bpd when the unrest started two years ago.
"The concern is that an attack on Syria will reverberate through the region, increasing the spillover into other countries and possibly resulting in a larger supply disruption elsewhere," said Michael Wittner, oil analyst at the bank. Over the coming days, Brent could surge to $125, either in anticipation of an attack or in reaction to its start, he said.
In the scramble for safety, investors turned to gold, which hit a 3-1/2 month peak above $1,430 an ounce, and bought the dollar on a view that it was the ultimate refuge from the risks of intensified upheaval in the Middle East.
But U.S. stocks, which are considered risky asserts, rose as selling pressure waned following Tuesday's worst decline for the S&P 500 since June. A climb in oil prices lifted energy shares.
The dollar rebounded against the yen and climbed versus the Swiss franc as investors sought the greenback's safety. In midday trading, the dollar was up 0.7 percent at 97.66 yen, recovering from an intraday trough of 96.83 that matched the low touched two weeks ago, according to Reuters data.
"The dollar's rally is clearly related to Syria," said David Starkey, senior market analyst at Cambridge Mercantile Group in Toronto. "Investors realize that the dollar is still the safest currency to be in right now. Also, momentum is indicating that it's time for the dollar to pick up a little ground."
Investors, having bought the yen and Swiss franc a day earlier amid Syria-related concerns, also locked in steep gains in those currencies on Wednesday. The dollar, yen and Swiss franc are considered safe havens in times of economic stress and geopolitical turmoil.
Emerging markets, such as Syria's neighbor Turkey, already pummeled by an expected reduction in U.S. stimulus measures, took further hits. The Turkish lira and India's rupee both touched record lows against the dollar. The Indonesian rupiah was hit once again, and global equity markets fell broadly.
In the Middle East, Dubai's stock index shed 1.4 percent to add to the 7 percent loss recorded on Tuesday, leaving it near a six-week low.
WALL ST REBOUNDS
In U.S. equities markets, stocks moved higher after the S&P 500 index fell 2 percent in the prior two days and the CBOE Volatility Index rose 20 percent, reflecting investor uncertainty.
"Yesterday was a little overdone but investors need to be ready that volatility is going to be here for a while," said Ron Florance, deputy chief investment officer at Wells Fargo Private Bank in Scottsdale, Arizona.
"We have this struggle between the short term news and the longer term trends and that is always a recipe for volatility until the market can really find direction."
Dow Jones industrial average was up 78.89 points, or 0.53 percent, at 14,855.02. The Standard & Poor's 500 Index was up 9.81 points, or 0.60 percent, at 1,640.29. The Nasdaq Composite Index was up 26.95 points, or 0.75 percent, at 3,605.47.
The CBOE Volatility index fell 3.6 percent to 16.17.
In Europe, the FTSEurofirst 300 was down 3.80 points or 0.3 percent at 1,198.56, finding technical support around 1,192, after breaking below the 50-day moving average.
Heavy selling across Asian markets, particularly in southeast Asia, sent MSCI's main emerging equity index down 0.5 percent and left its world equity index , which tracks share moves in 45 countries, down 0.5 percent at seven-week lows before it recovered slightly. It was last down 0.2 percent.
Brent was at $116.04 per barrel, up $1.69, while U.S. crude rose $1.09 to $110.10, after hitting an intraday peak of $112.24 - its highest since May 2011.
Amid the worries over Syria, investors largely shrugged off data showing euro zone bank lending contracted further in July, which highlighted the fragility of the bloc's nascent recovery and should keep pressure on the European Central Bank to maintain its expansive monetary policy.
However, flight-to-quality demand buoyed German government bonds, sending the 10-year Bund yield down 3 basis points to 1.824 percent as it moves further away from Friday's 1-1/2 year highs of 1.98 percent.
The benchmark 10-year U.S. Treasury note was down 20/32, the yield at 2.7818 percent.
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