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Stock gains capped by oil rise to 30-month high

Stock gains capped by oil rise to 30-month high

Positive market momentum from last week's upbeat U.S. jobs data was capped Monday by elevated oil prices, which earlier hit 30-month highs amid signs the conflict in Libya will not end anytime soon.
Though Friday's news that the U.S. economy generated a greater than anticipated 216,000 jobs in March helped Asian stocks earlier, the rally did not extend to the same extent to Europe and the U.S. as traders assessed the impact of sky-high oil prices on the global recovery.
The apparent stalemate in Libya, which accounts for a little under 2 percent of daily oil production, is keeping crude prices elevated. By mid-afternoon in London, a barrel of oil traded on the New York Mercantile Exchange was up 13 cents at $108.07 a barrel. Earlier, it had risen as far as $108.78, its highest level since September 2008.
Nevertheless, investors have largely been resilient to bad headlines of late, evidenced by the fact that the S&P 500 in the U.S. posted its best first-quarter advance since 1998.
As well as sky-high oil prices in the wake of uprisings across the Arab world, investors have had to contend with natural disasters in Japan, Europe's debt crisis and the prospect of higher borrowing costs in the more developed economies. The European Central Bank, for example, is expected to hike its main interest rate by a quarter percentage point.
"If an investor had been asked to forecast such a toxic cocktail of earthquakes, tsunamis, war, nuclear crisis and seemingly endless financial turmoil, they would not have predicted that shares would stand at a three-year high," said Edward Menashy, chief economist at Charles Stanley.
Menashy noted that the top worry in the markets is the price of oil, which has risen by more than 40 percent over the past year. Historically, high oil prices take an axe to earnings by raising input costs.
Those concerns have not been enough to prompt any meaningful reversal in stock markets, but are a lingering source of uncertainty.
In Europe, the FTSE 100 index of leading British shares closed up 0.1 percent at 6,017 while Germany's DAX fell less than 0.1 percent to 7,175. The CAC-40 in France was 0.3 percent lower at 4,043.
In the U.S., the Dow Jones industrial average was up 0.2 percent at 12,398 while the S&P 500 index rose 0.1 percent to 1,333.
Later in the week, central banks will take center stage. While the European Central Bank is widely expected to raise interest rates, there's more uncertainty about what the Reserve Bank of Australia and the Bank of England will do, with most economists predicting that they will end up leaving borrowing costs unchanged.
The Bank of Japan also meets this week and investors will be looking to see if it enacts any further policy measures. The central bank has pumped billions of yen into the economy as it tries to keep liquidity flowing through the system. It has also received international support to stem the export-sapping appreciation of the yen following last month's disaster.
The intervention has clearly helped. By late afternoon London time, the dollar was down 0.2 percent on the day at 83.98 yen _ despite the modest fall, the dollar is trading way higher than the record low of 76.53 yen.
Meanwhile, the euro remained elevated despite trading flat on the day at $1.4230.
The euro has gained a lot of ground over the past few weeks as traders priced in the growing likelihood that the ECB will tighten policy.
However, some analysts think that the currency may be vulnerable given the scale of tightening priced in the markets as well as ongoing concerns over the financial fate of Portugal, whose borrowing costs seem to be staking out record highs on a daily basis.
In addition, Lee Hardman, currency economist at the Bank of Tokyo-Mitsubishi UFJ, said there's scope for the dollar to reclaim some lost ground if investors start thinking the Fed will start raising its borrowing costs sooner than currently predicted. Some officials at the Federal Reserve are clearly inclined to do so if recent comments are any guide.
"A very high hurdle has been set for the euro to gain fresh upside momentum on the back of ECB tightening expectations ahead," said Hardman. "There is more scope for building Fed tightening expectations to provide support for the dollar."
Earlier, Asian shares ended the day mostly higher, with traders looking past a host of crises, including Japan's leaking nuclear power plant and a violent rebellion in Libya.
The benchmark Nikkei 225 index eked out a gain of 0.1 percent to close at 9,718.89, shrugging off the Bank of Japan report that business confidence among major manufacturers had fallen.
Hong Kong's Hang Seng index gained 1.5 percent to 24,150.58, while Australia's S&P/ASX 200 rose 0.5 percent to 4,886.80.
Markets in mainland China and Taiwan were closed for a holiday.
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Pamela Sampson in Bangkok contributed to this report.


Updated : 2021-10-23 10:59 GMT+08:00