* Oil prices surge as Iraq violence escalates
* European shares stable as growth concerns cap gains
* U.S. shares indicated to start flat to slightly up
(Updates prices, adds details, fresh comments)
By Emelia Sithole-Matarise
LONDON, June 12 Oil prices hit a three-month
peak on Thursday on worries escalating violence in Iraq may
disrupt supply while European shares stabilised near 6-1/2-year
highs with gains capped by global growth concerns.
Investors have become increasingly anxious after militants
from an al-Qaeda splinter group captured Mosul, the OPEC
producer's second largest city, and appeared to be making rapid
advances towards the Shi'ite-led government in Baghdad.
Brent futures - an international oil benchmark
sensitive to geopolitical turmoil - jumped more than $2 to
$112.29 a barrel, the highest since early March.
"I would entirely ascribe this move to the insurrection in
the north of Iraq ... The fear is that it will cause a threat to
Iraqi oil exports," Christopher Bellew, a trader at Jefferies
"If this conflict knocked out Iraq as an exporter, that
would have significant impact on prices ... How high could they
go? It depends on what happens."
Events in Iraq and renewed concerns about the pace of global
growth made investors tread cautiously in riskier assets.
European, U.S. and Asian shares retreated from multi-year
and record peaks reached this week after the World Bank cut its
global growth forecast.
The FTSEurofirst 300 index of top European shares
was slightly up on the day at 1,393.75 points, hovering just
below the 1,398.65 peak hit earlier on Wednesday. U.S. stock
index futures pointed to a steady to
slightly higher open on Wall Street, as investors look for
further impetus to keep buying.
"After such a good rally, it's not the time to buy right
now, it's better just to sit on your gains. The market is quite
vulnerable to negative news at the moment," said Philippe de
Vandiere, analyst at Altedia Investment Consulting, in Paris.
"On the longer term however, earnings in Europe will start
to recover in the next few months, which should lift stocks
Among major currencies, the New Zealand dollar jumped 1.3
percent to a four-month high after the central bank raised
interest rates and retained a hawkish bias, surprising some
investors who had bet on a slower pace of rate hikes.
The kiwi surged more than one percent to $0.8676.
Other major currencies were little changed with the euro
stuck near the four-month low hit after the European Central
Bank cut its own rates last week.
The euro traded at $1.3523, compared with a low of
$1.3503 hit on Thursday. The euro has fallen almost 1 percent
this week as the effects of the ECB's easing policies spread
through markets but the jury remains firmly out on whether the
bank has managed to turn the tide.
A stronger dollar on the basis of improvement in the U.S.
economy and a resulting rise in Treasury yields was many banks'
base scenario for 2014 at the start of the year.
"It does feel like lower yields are starting to weigh on the
euro," said Paul Robson, a currency strategist at RBS in London.
"I don't quite want to jump on the bandwagon yet - the
reasons for the euro's strength this year have not quite gone
away. Yes, it may go through $1.35, but I don't think it will go
much beyond that."
In fixed income, peripheral euro zone bond yields pulled
away from record lows as investors made way in their portfolios
to take down bond sales from Italy and Spain.
Spanish 10-year bond yields were up 4 basis
points at 2.67 percent as Madrid also took steps to ease its
hefty upcoming debt repayments by switching expensive debt
issued at the height of the sovereign debt crisis for a new
Equivalent Italian yields were up 2 bps at
2.81 percent as the market digested an auction of 8.5 billion
euros of three-, seven-, and 30-year bonds.
(Additional reporting by Blaise Robinson in Paris, Patrick
Graham and Lin Noueihed; Editing by Catherine Evans/Ruth