Oil hits $113 as contagion fears grow

2011-02-24 09:53

Sydney - Unrest in Libya and the threat of contagion to other oil producing countries in the region drove Brent crude to $113 a barrel on Thursday, but the selloff in Asian stocks eased as investors started to nibble at beaten-down shares.

Copper also bounced off one-month lows, although the dollar stayed on the back foot as some investors worry that the US economy would be vulnerable to high oil prices, given its reliance on consumer spending to drive growth.

London Brent crude rose as high as $113 a barrel for the first time since September 2008, having gained nearly 10% in the past four sessions. US crude last traded at around $99.38 a barrel, a whisker away from Wednesday's high of $100.

Worries that higher energy prices will crimp corporate profits had sparked a steep selloff in Asian stocks in the past two sessions, but that looked to be losing its punch.

Japan's Nikkei 225 index , while still 0.4% lower on the day, was off its lows and stocks elsewhere in Asia erased early losses to be up 0.4%.

"As Japanese stocks have tumbled for the past two sessions (losing 2.6%), today's losses may not be sharp," said Masumi Yamamoto, a market analyst at Daiwa Securities Capital Markets.

Hong Kong's Hang Seng put on 0.2% and China's Shanghai Composite Index edged up 0.2%. Gains in US stock futures suggest a steadier start on Wall Street after two sessions of declines.

Gold, a traditional safe haven in times of trouble, traded at around $1 412 an ounce, not far from a record high around $1 430 set in December.

Copper gained 1.1% to $9 526 a tonne, climbing off a one-month low of $9 365.

The dollar index , which tracks its performance against a basket of major currencies, shed 0.3% to 77.173.

Against the Swiss franc, the dollar fell to a record low at around 0.9277 franc , surpassing the previous trough of 0.9301 set at the end of the year.

The euro held firm at $1.3776 , coming within easy reach of its February 2 peak of $1.3862, helped also by recent hawkish comments on inflation by European Central Bank officials, which raised expectations the ECB will hike interest rates before the Federal Reserve.

"There may be a realisation that if oil prices rise sharply, that would hit all the developed countries and in that sense it effects every major currency the same," said Tsutomu Soma, manager of foreign bonds at Okasan Securities.

"And if the impact from the Middle East crisis is roughly equal on each currency, you could argue that currencies with a yield advantage will benefit at the end of the day," Soma said.

The New Zealand dollar continued to struggle at two-month lows below $0.7500, with markets now pricing in an 88% chance that the next rate move will be a 25 basis point cut .

The move followed the deadly earthquake that hit the country's second biggest city of Christchurch on Tuesday.