* Sterling surges after clear rate hike talk from BoE
* Iraq fighting, weak US data hit risk appetite, buoy yen
* Oil nears $115 a barrel
* Stocks drop back, Wall Street set for 1st weekly fall in 3
By Marc Jones
LONDON, June 13 Sterling surged on Friday after
the Bank of England hinted at an interest rate rise this year,
while escalating violence in Iraq drove oil higher and sent
equity markets lower.
U.S. stock index futures pointed to a lower start for Wall
Street, putting the Dow and S&P 500 on track for
their first weekly declines in four despite touching record
highs earlier in the week.
European shares' prospects of a ninth straight
weekly rise looked to be dashed as the unrest in Iraq and signs
that the era of record low interest rates is near an end, at
least in some countries, made investors cautious.
Bank of England Governor Mark Carney said late on Thursday
that British interest rates could rise sooner than financial
markets expect, in a surprisingly stark warning that monetary
policy may start to tighten before the end of this year. Markets
had previously been expecting a rate hike in the first quarter
That would make the BoE the first of the four major central
banks to raise interest rates and create a big divergence in
Europe where the European Central Bank is edging towards the
kind of asset buying and lending plans the UK has had in place
Sterling neared a five-year high against
the dollar on Carney's comments and hit a 1-1/2 year high of
1.2525 euros. The gap between 2-year UK and German
yields ballooned to its widest in four years, reflecting just
how different BoE and ECB policies are likely to be.
"The BoE seems to be slightly ahead of the Fed as far as
rate hikes are concerned," said Lutz Karpowitz, currency analyst
at Commerzbank. "Macro data is likely to attract particular
attention over the coming months. Anything pointing towards a
possible rate hike would then support the pound further."
Financial markets' focus was otherwise on the rising
violence in Iraq where Sunni Islamist militants have surged out
of the north this week to menace Baghdad and want to establish
their own state in Iraq and Syria.
President Barack Obama on Thursday threatened U.S. military
strikes in Iraq against the insurgents, who gained more ground
"I don't rule out anything because we do have a stake in
making sure that these jihadists are not getting a permanent
foothold in either Iraq or Syria," Obama said at the White House
when asked whether he was contemplating air strikes. Officials
later stressed that ground troops would not be sent in.
Oil drove sharply higher, with Brent crude slicing
through $114 a barrel at one point to a fresh nine-month high
and the market looking in a jumpy mood.
U.S. crude touched an intraday high of $107.68. Both
benchmarks are set to gain almost 5 percent this week, the
biggest weekly rise since July 2013.
"There have been no disruptions to oil supplies so far but
people are very nervous," said Ken Hasegawa, a Tokyo-based
commodity sales manager at Newedge Japan.
In Asian trading, the yen and gold both
benefited from their traditional safe-haven statuses. U.S.
Treasury yields also sagged as soft U.S. data added
to the renewed sense of caution, a move mirrored by German
government bonds in Europe.
Weaker-than-expected U.S. retail sales and jobless claims
data on Thursday further tempered economic optimism felt earlier
in the week that had propelled Wall Street to record highs.
Taking its cue from an overnight slide in U.S. stocks,
MSCI's broadest index of Asia-Pacific shares outside Japan
shed 0.3 percent. Tokyo's Nikkei swam
against the tide to rise 0.9 percent on hopes for news of a
corporate tax cut, taking its rise over the last three weeks to
almost 9 percent.
Back with central banks, the Bank of Japan stood pat on
monetary policy as its chief Haruhiko Kuroda stressed there was
no chance of the bank quitting its stimulus programme before it
is confident on inflation.
Reaction was more muted towards China's industrial output
and retail sales data, which rose in line with forecasts but
were not solid enough to show that the world's second-largest
economy was on a solid, broad recovery.
The dollar edged up 0.3 percent to 102.04 yen but was
still stuck near a two-week low of 101.60 hit on Thursday.
On the week, the dollar was on course to lose about 0.5
percent against the yen but gain 0.2 percent against a broader
basket of currencies.
(Additional reporting by Anirban Nag; Editing by Susan Fenton)