While you were sleeping: Stocks fall as oil keeps climbing

While you were sleeping: Stocks fall as oil keeps climbing

(BusinessDesk) March 2 - Stocks dropped, while oil surged, amid increasing concern that the escalating turmoil in Libya and elsewhere in North Africa and the Middle East would hurt global economic expansion, despite reassurances otherwise by policy makers.

In mid-day trading, the Dow Jones Industrial Average dropped 0.66%, the Standard & Poor's 500 Index shed 0.79% and the Nasdaq Composite Index declined 0.91%. For the past seven months, stocks have risen on the first day of the month.

Across the Atlantic, the Stoxx Europe 600 Index shed 0.6%.

Brent crude futures for April rose as high as US$114.35. Investors are increasingly worried that the continuing rise in the cost of oil will force consumers to curb spending elsewhere.

Comments by Federal Reserve Chairman Ben Bernanke, who said the surge in oil and other commodity prices probably wouldn’t cause a permanent increase in broader inflation and repeated that borrowing costs were likely to stay low, failed to provide reassurance.

High oil prices are "essentially a huge tax on consumers, who make up two-thirds of the economy. So there's no way [gross domestic product] won't suffer on this," Scott Armiger, portfolio manager at Christiana Trust in Greenville, Delaware, told Reuters.

The U.S. dollar took a hit after Bernanke’s comments to the Senate Banking Committee, where he offered no hint that he was considering cutting short the central bank’s US$600 billion bond-buying stimulus.

The greenback weakened to the lowest in 3 1/2 months against a basket of major currencies.

While Bernanke warned job growth remained far too anemic, he also said “[w]e do see some grounds for optimism about the job market over the next few quarters."

"There is nothing that Bernanke has said that is going to change the market's view that the Fed is going to be a laggard in the tightening cycle relative to most G10 central banks," Alan Ruskin, global head of Group of 10 foreign exchange strategy at Deutsche Bank in New York, told Reuters.

Underpinning recent signs of U.S. economic strength was the Institute for Supply Management’s factory index, which increased to 61.4, the highest since May 2004, from 60.8 in January.

The euro was up 0.1% to US$1.3817.

Oil prices rose amid comments by the United States today that Libya could descend into civil war if Muammar Gaddafi refuses to quit. There were reports of unspecified Western military preparations.

Even so, the Libyan leader remained defiant, sending forces to a western border area amid concern that the most violent Arab revolt might spark a humanitarian crisis.

Meanwhile, there were reports that Iran arrested opposition leaders Mir-Hossein Mousavi and Mehdi Karrubi to derail demonstrations planned for today, and Saudi Arabia’s benchmark stock index suffered its biggest drop in more than two years amid concern the turmoil might spread to the kingdom.

Brent crude futures for April rose US$1.75 to US$113.55 a barrel at 11.20am EST. U.S. crude rose US$1.30 to US$98.27 a barrel.

Gold also rose, while silver climbed to the highest level in more than three decades as investors fled to the perceived safety of precious metals.

"What gold needed was a catalyst, and it found it in the form of tensions that are surfacing in the Middle East and rising oil prices, which served as an inflationary threat and also led to political instability," Mark Luschini, chief investment strategist of Janney Montgomery Scott, a brokerage that manages US$53 billion in client assets, told Reuters.

Spot gold rallied, rising 0.8% to US$1,421.85 an ounce by 11.12am EST. Earlier in the session, it rose as high as US$1,424.01 an ounce, the highest since December 7 when it reached a record US$1,430.95.

(BusinessDesk)

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