* European shares down 0.8 pct on oil price worries
* Oil eases off 10-month highs
* Euro hovers below 10-week highs
By Richard Hubbard
LONDON, Feb 27 European shares and other
risk assets like the euro and precious metals fell on Monday
while the U.S. dollar gained as investors worried that higher
oil prices could flatten the fragile global economic recovery.
But the European Central Bank's planned mid-week injection
of cheap three-year loans into the region's banking system,
expected to total around half a trillion euros ($675 billion),
is keeping the losses in check.
The euro was down 0.4 percent at $1.3400, not far
from a 2-1/2 month high of $1.3486 set on Friday, with gains
seen possible before the ECB's second longer term refinancing
operation (LTRO) on Wednesday - despite the unease about the
global risks posed by oil costs and the relentless euro crisis.
In line with the widespread weakness, U.S. stock index
futures pointed to a lower open for equities on Wall Street on
"At least for now a large ECB LTRO could be positive for the
euro as the market will focus on the positives and it will
increase risk appetite," Richard Falkenhall, currency strategist
at SEB in Stockholm said.
But some market players say the impact of the ECB's
operation may already be largely reflected in the prices of
assets like European sovereign bonds and even the euro itself.
"It's all pretty well priced in and pretty well expected.
We're looking for just under 500 billion euros and about 300
billion euros of net new liquidity," said Kevin Lecocq, chief
investment officer, Private Wealth Management, at Deutsche Bank.
"Wednesday won't be big," Lecocq forecast.
A weekend meeting of 20 finance ministers from the world's
major economies, which failed to reach an agreement on making
more funds available to Europe to fight its debt crisis, was
largely ignored with concern focussed instead on whether the
German parliament will endorse the Greek bailout on Monday.
The vote is expected to be tight but lawmakers will almost
certainly support the package.
With the global economy generally struggling, higher oil
costs are seen as the biggest risk to the global rally in
equities and commodities that has been driven by a renewed round
of policy easing by the world's major central banks since the
ECB's first massive injections of loans last December.
March Brent crude futures were down about $1.37 to $124.10 a
barrel but still up 16 percent for the year after a 13
percent gain in 2011. U.S. crude slipped $1.53 to a low
Oil has been rising this year due to supply concerns related
to worsening tensions over Iran's disputed nuclear programme. It
may have begun to pare some of those gains after Saudi Arabia
increased exports sharply in the past week, and
because the Obama administration is looking to see what
circumstances could warrant a tap of U.S. strategic oil
The U.S. dollar hit a 9-month high above 81.60 yen, a gain
of about 7 pct so far in February, as higher oil prices joined a
list of factors weakening the yen, including Japan's 2011 trade
deficit, its first since 1980, Bank of Japan monetary easing and
the threat of intervention.
In European equity markets the oil price gains hit the
outlook for the automobile sector sending the FTSEurofirst 300
index of top European shares down 0.8 percent to
1,068.48 points, below a seven-month high last week.
Global equities suffered from a weaker session in Asia and
the European falls, with the MSCI world equity index
down 0.5 percent at 3,300.18 but still up over
10 percent for the year to date.
Gold, which is up over 13 percent this year, fell nearly 1
percent to $1,764.80 an ounce, platinum was down
0.9 percent at $1,692.99 an ounce and silver was down 0.7
percent at $35.12 an ounce.
Precious metals are generally a safe haven from risk and
have gained from fears that the hopes of resolution Europe's
debt crisis are overdone. But they have also tracked the euro
higher as some investors move away from ultra-safe assets like
low-yielding U.S. Treasuries.
In the debt markets the approaching ECB loan operation has
supported riskier assets and short-dated Italian and Spanish
bonds actually rallied on Monday as investors positioned for the
fresh boost expected from the ECB's money injection.
The yield on Italy's two-year bonds dropped by
19 basis points to an 11-month low of 2.75 percent, with a
strong auction of Italian treasury bills adding momentum.
"I suspect this is market positioning in anticipation of a
relatively significant LTRO (long-term refinancing
operation)take up," said Rabobank strategist Richard McGuire.