February 22, 2011 / 1:22 AM / 7 years ago

Oil gains, stocks fall on rising Libya fears

NEW YORK (Reuters) - World stocks tumbled on Tuesday as revolt in Libya drove crude oil prices to 30-month highs and sparked fears of slower global growth if the unrest spreads to other oil-exporting countries in the region.

Global stocks, as measured by MSCI’s all-country world index .MIWD00000PUS, fell 1.6 percent.

Wall Street stocks suffered their worst day since last August in what could be the start of a long-anticipated pullback after gaining more than 20 percent in the past six months. Heavy volume and rising volatility gave credence to a significant correction to the uptrend which has seen stocks double from their March 2009 lows in the past two years.

Crude oil prices surged in London and new York to highest levels in 2-1/2 years with North Sea Brent touching$108.57 a barrel before trimming most of those gains after Saudi Arabia said the Organization of Petroleum Exporting Countries would meet any supply shortages caused by the Libyan revolt.

“The major underlying fear in the market is that these protests spread in the region to even larger producers like Saudi Arabia,” said Andy Lebow, a trader at MF Global in New York. “While that might not look likely right now, even a hint of real problems there could send prices vertical.”


Libya declared force majeure on all oil product exports as political violence shut more than 13 percent of the country’s 1.6 million barrels per day of crude production.

A defiant Muammar Gaddafi vowed to die “a martyr” in Libya and said he would crush a revolt which has seen eastern regions already break free from four decades of his rule.

Libya only ranks third in Africa after Nigeria and Angola in oil production, but investors are concerned that the spread of violence in North Africa and the Middle East could disrupt the supply of regional oil exports.

U.S. crude for March delivery, which expired at the close, settled up $7.37 at $93.57 a barrel. The day’s trading included business done electronically on Monday, when floor trade was shut due to the U.S. Presidents Day holiday.

In London, Brent crude oil futures settled up 4 cents at $105.78 a barrel, its highest close since September 2008.


The CBOE Volatility Index .VIX, Wall Street’s so-called fear gauge, surged more than 27 percent in its highest one-day jump since last May. Volume on the three main stock exchanges was the highest this month and the second-highest this year.

The Dow Jones industrial average .DJI closed down 178.46 points, or 1.44 percent, at 12,212.79. The Standard & Poor's 500 Index .SPX fell 27.57 points, or 2.05 percent, at 1,315.44. The Nasdaq Composite Index .IXIC dropped 77.53 points, or 2.74 percent, at 2,756.42.

Higher oil prices hit certain stocks on concerns of higher fuel costs. The Arca airline index .XAL fell 5.5 percent.

Stocks resisted further decline for much of the day after data showing U.S. consumer confidence rose to a three-year high in February. But a drop in home prices for the sixth month in a row in December suggested the economy still faces some hurdles.

    The Swiss franc, traditionally sought in times of heightened geopolitical tension, firmly gained against the euro as concerns about oil supplies cooled risk appetites and sent investors into safe-haven assets such government debt. The Swiss currency rallied about 1.0 percent versus both the euro and U.S. dollar.

    The euro was down 0.15 percent at $1.3654, and against the Japanese yen, the dollar was down 0.43 percent at 82.75.

    “Libya is the obvious theme today, so you have a little bit of safe-haven trading,” said Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York.

    U.S. Treasury debt prices rose, boosted by Libya-sparked safe-haven buying, and some analysts anticipate further price gains on expectations that economic growth will wane.

    The price of the 30-year U.S. Treasury bond rose more than a full point and the benchmark 10-year rose a full point as the unrest in Libya prompted investors to swap riskier assets for safe-haven bonds.

    The 10-year U.S. Treasury note was up 1-1/32 in price to yield 3.46 percent, while the 30-year bond last traded 1-14/32 higher in price to yield 4.60 percent.

    Spot gold prices edged under $1,400 an ounce, breaking a six-session rally, as bullion investors took profits and as sharp losses in equities and other commodities prompted margin selling.

    U.S. gold futures for April delivery settled up $12.50 at $1,401.10 an ounce, in gains that were largely due from the Presidents Day closing of markets on Monday.

    Additional reporting by Chuck Mikolajczak, Karen Brettell, Gertrude Chavez-Dreyfuss, and Julie Haviv in New York; Writing by Herbert Lash, Editing by Andrew Hay and Chizu Nomiyama

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