NEW YORK Brent oil priced in euros hit a record high on Thursday on heightened tension between Iran and the West while U.S. stocks neared peaks not seen since before the 2008 collapse of Lehman Brothers.
The rise in Brent, the benchmark for European crude and most international oil trades, poses a new headache for cash-strapped Europe, still reeling from a two-year-old sovereign debt crisis.
German data helped the euro rise to its highest in 2-1/2 months against the U.S. dollar. The Ifo think tank survey of business sentiment rose to its strongest in seven months.
But forecasts for the euro zone economy underscored the pressures facing the region. The European Commission's half-yearly forecast showed output in the 17 nations sharing the euro will contract by 0.3 percent and the broader EU bloc will stagnate.
Economists worry that rising oil prices will undermine efforts to put the region on a stronger footing as well as dampen the outlook for the global economy.
Iran's stance has sparked fears that its confrontation with the West over its disputed nuclear program would escalate and affect oil flow from the Middle East.
"It's all about Iran. The inspectors leaving intensifies the concerns and backs up the Israeli argument that diplomacy will not work," said John Kilduff, partner at Again Capital LLC in New York.
Underpinning U.S. stocks, weekly jobless claims data added to signs of progress in the U.S. economy. Data showed U.S. first-time claims for unemployment benefits held steady at a four-year low of 351,000 last week.
The Dow Jones industrial average .DJI closed up 46.02 points, or 0.36 percent, at 12,984.69. The Standard & Poor's 500 Index .SPX ended up 5.80 points, or 0.43 percent, at 1,363.46. The Nasdaq Composite Index .IXIC finished up 23.81 points, or 0.81 percent, at 2,956.98.
Thursday's gains brought the benchmark S&P 500 index near 1,370, considered the upper end of a technical barrier. The broad index has surged 8.4 percent this year and more than 20 percent from October lows, but many worry the market will soon run out of steam.
In the past four sessions, the S&P has hovered around 1,360, closing on Thursday at a 9-month high.
"You have a reluctance to buy knowing we're right up at former highs," said Todd Salamone, director of research at Schaeffer's Investment Research in Cincinnati.
World stocks, as measured by the MSCI world equity index .MIWD00000PUS, were up 0.3 percent, while the FTSEurofirst 300 .FTEU3 index of top European shares ended down 0.2 percent, having cut earlier losses.
In late afternoon New York trading, the euro was up 0.9 percent at $1.33654. It soared to a session high of $1.33747, which was its strongest level since December 12 on trading platform EBS, as it took out stops above $1.3350.
Analysts said that even though a Greek debt deal is out of the way, euro zone problems will continue to be a source of worry for euro investors.
Athens may vote on a private sector involvement bill that includes a provision to retroactively write down some of its debt on bond holders not participating in the debt swap.
German PMI, IFO & GDP growth: link.reuters.com/puq93s
Brent to WTI spread: link.reuters.com/dyz46s
GOLD, OIL RISE
The increase in appetite for risky assets also lifted gold.
Gold gained for a fourth straight day as the dollar dropped. Spot gold was up 0.2 percent at $1,780.06 an ounce.
On a euro basis, Brent futures hit a record 93.60 euros per barrel in early trade, exceeding the previous peak of 93.46 euros hit on July 3, 2008 and prompting concern that high oil prices would hit the shaky economic recovery and further dent demand.
Dollar-denominated Brent crude for April delivery rose for a fourth day and hit fresh nine-month highs.
Brent rose 72 cents, or 0.59 percent, to settle at $123.62 a barrel, while U.S. April crude rose $1.55, or 1.46 percent, to settle at $107.83 a barrel.
U.S. crude rose further as investors sold off a key spread - the premium of international benchmark Brent to U.S. futures - after a government report showed a drop in inventories at the Cushing, Oklahoma, delivery point for the New York Mercantile Exchange's contract.
In the U.S. Treasury market, prices rose as intense bidding at a $29 billion seven-year debt auction spurred buying in the broader bond market, pushing benchmark yields below 2 percent.
The 10-year note was up 3/32, with the yield at 2.00 percent.
(Reporting by Caroline Valetkevitch; Additional reporting by Gene Ramos and; Gertrude Chavez-Dreyfuss; Editing by James Dalgleish)