Oil jumps, Asia shares fall on Libya unrest

Wednesday, 23 February 2011 00:01 - - {{hitsCtrl.values.hits}}

(Reuters) - Oil prices jumped and Asia stock prices fell on Tuesday as investors took fright at the unfolding crisis in Libya and turned to safe havens such as government bonds and gold, pushing the precious metal briefly to a seven-week high.

U.S. crude futures hit a 2-1/2 year high on concern that violence in Libya could cut more of the OPEC-member’s output and that a similar story could play out in other top oil producers in North Africa and the Middle East.

Brent crude for April delivery rose $1.42 cents to $107.16 a barrel by 0451 GMT, after rising as high as $108.18 in early trade. On Monday, Brent hit a 2-1/2 year high of $108.70.

“The market is very nervous over news of violence in Libya,” said Yinxi Yu, a commodities analyst with Barclays Capital.

Japan’s Nikkei 225 index closed down 1.8 percent and the MSCI’s index of Asia Pacific shares outside Japan .MIAPJ0000PUS was also off about 1.8 percent . .T

Airline stocks tumbled across the region on the back of rising oil prices. Korean Air Line Co Ltd led losers, dropping more than 9 percent. Hong Kong’s Cathay Pacific Airways Ltd fell more than 4 percent to a six-month low.

Major South Korean builders also slid as they put their Libya construction projects on hold. Hyundai E&C shares tumbled more than 9 percent, while Daewoo Engineering & Construction fell 6.3 percent.

Moody’s Investors Service changed the outlook on Japan’s Aa2 sovereign rating to negative from stable, warning that government policies may not be enough to rein in public debt.

“The market is not reacting much to the decision,” said Takeshi Shibasaki, chief financial analyst at Mizuho Securities. “Standard and Poor’s has already cut Japan’s rating, and separately there already were expectations among participants that Moody’s would do something.”

Gold, a traditional refuge in times of tumult, extended gains and rose to its highest in seven weeks, lifting silver to its strongest level since 1980.

Spot gold rose $3.75 to $1,409.70 an ounce, but soon drifted back into negative territory. Silver jumped above $34 an ounce, its highest since 1980, before also falling back to around $33.33.

European stocks lost more than 1 percent on Monday on a combination of fears over Libya, where Muammar Gaddafi faced a mounting revolt against his 41-year rule, signs of imminent interest rate rises and more evidence of a poor earnings season.

U.S. markets were closed Monday for a holiday but U.S. stock futures were sharply lower, suggesting Wall Street will likely fall when they reopen on Tuesday.

“There are a lot of people in the marketplace waiting to get in at better levels,” said Todd Martin, Asia equity strategist with Societe Generale in Hong Kong.