7:30 AM Tuesday Feb 22, 2011
Investors flocked to oil and gold on world markets overnight amid escalating tensions in the Middle East, with violence in Libya gathering steam.
Dozens of people were reported killed in Tripoli overnight as anti-government protests reached the Libyan capital for the first time. Libya's uprising comes amid a series of revolts that have spread across the Arab world since December.
The turmoil weighed on equities, sending the Stoxx Europe 600 Index 1.3 per cent lower. Shares of companies with operations in Libya suffered. Eni SpA and OMV AG each shed more 4 per cent amid concern the turmoil would hurt their operations in the North African country.
US markets were closed for the Presidents' Day holiday.
Oil prices soared, pushing Brent crude as much as 2.5 per cent higher to the highest level in 2 1/2 years.
"The situation in Libya looks pretty bad and we're seeing safe-haven flows on the back of that," Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin, told Reuters.
Investors also sought the perceived safety of gold amid concern that the problems in the Middle East would keep pushing up oil prices, boosting inflation and denting global economic growth.
Spot gold was bid at US$1,406.40 an ounce at 1633 GMT, against
US$1,388.58 late in New York on Friday. US gold futures for April delivery rose US$18.90 an ounce to US$1,407.50. "The unrest and the fear in these countries is increasing," Bayram Dincer, an analyst at LGT Capital Management in Switzerland, told Reuters. "These uncertainties on the geopolitical risk side are driving the gold market."
"See how easily gold broke US$1,390, US$1,395, which were strong resistance levels, and now the US$1,400 psychological level," he said. "It seems nobody is looking for lower gold prices."
The euro gave up earlier gains and weakened on concern about the increasing unrest in Libya. The currency traded 0.2 per cent lower on the day at US$1.3660.
Earlier in the session, the currency had risen to US$1.3727 on comments by European Central Bank policy makers that they might support lifting interest rates in coming months as the economy recovered and imported fuel price pressures.
With inflation above the ECB's 2 per cent ceiling and its benchmark rate at a record low of 1 per cent, officials must gauge whether the resulting liquidity situation "is still appropriate," Executive Board member Lorenzo Bini Smaghi said in Hong Kong today. "Clearly as the economy is better, maybe this assessment has to be revised."
Separately, ECB council member Athanasios Orphanides told Dow Jones that inflation might remain above 2 per cent "somewhat longer than we expected before" and the bank "must be ready to act as appropriate to safeguard price stability."