GLOBAL MARKETS-Syria worries drive oil up; dollar, gold in demand
* Oil settles slightly below six-month high; some profit-taking
* Dollar gains as Syria worries trigger safety bid
* Wall Street moves 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 higher while triggering a safe-haven run to gold and the dollar.
Brent crude oil futures for October delivery settled up $2.25, or 1.97 percent, at $116.61 a barrel after reaching a six-month high of $117.34.
Fears that Western countries were preparing to attack Syria raised concerns over the security of oil supplies across the Middle East, which pumps a third of the world's oil. Front-month U.S. crude oil futures ended up $1.09, or 1 percent, at $110.10 a barrel after rising as high as $112.24 - the highest since May 2011.
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.
The United Nations Security Council was set for a showdown over Syria on Wednesday as Britain sought authorization for Western military action that Russia called premature and seemed certain to block.
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 benchmark S&P 500 index since June. The climb in oil prices lifted energy shares.
The dollar rallied across the board as investors sought the greenback's safety. 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, 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 STREET 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."
The Dow Jones industrial average was up 87.31 points, or 0.59 percent, at 14,863.44. The Standard & Poor's 500 Index was up 9.33 points, or 0.57 percent, at 1,639.81. The Nasdaq Composite Index was up 25.42 points, or 0.71 percent, at 3,603.94.
The CBOE Volatility index fell 3.6 percent to 16.17.
In Europe, the FTSEurofirst 300 fell 3.80 points or 0.3 percent to 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, at seven-week lows before it recovered slightly. It was last down 0.2 percent.
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 U.S. benchmark 10-year Treasury note was down 20/32 in price, the yield at 2.7799 percent.
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