(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, May 7 (Reuters) - Oil jumped to a record high for
a third straight day on Wednesday, stoking inflation fears,
while U.S. stocks fell as financial shares declined, even as
European shares notched their highest close since mid-January.
Crude oil prices rose to a record near $123 a barrel, as
heating oil futures shot up on data that showed distillate
inventories fell, against forecasts for an increase.
The dollar gained, bolstered by comments from a Federal
Reserve official that increased expectations among investors
that the U.S. central bank's cycle of aggressive interest rate
cuts may be nearing an end.
U.S. Treasury debt prices were narrowly mixed, as the
market see-sawed, supported by economic data suggesting that
inflation is in check for now but pressured by an upcoming $15
billion sale of 10-year securities.
European stocks were helped by a weaker euro and results at
construction and technology groups that beat expectations.
U.S. and European equity markets got an initial lift from
U.S. government data that showed higher-than-expected worker
productivity gains and a lower-than-expected rise in unit labor
costs, soothing some inflation fears.
But pending U.S. home sales fell in March, as expected,
providing little upside for investors.
"There's little conviction among investors about how long
the economy stays weak," said Joseph Battipaglia, market
strategist at Stifel Nicolaus, Yardley, Pennsylvania.
"If you're not convinced we'll come roaring out of this in
the second half, you're going to be hesitant to commit more
capital to the market, and that's why you'll trade in a range,"
he said.
The Dow Jones industrial average <> fell 59.76 points,
or 0.46 percent, at 12,961.07. The Standard & Poor's 500 Index
<.SPX> fell 7.07 points, or 0.50 percent, at 1,411.19. The
Nasdaq Composite Index <> fell 7.94 points, or 0.32
percent, at 2,475.37.
In Europe, the pan-European FTSEurofirst 300 index <>
rose 0.8 percent at 1,362.11 points, its highest point since
mid-January.
The technology sector <.SX8P> was the best performer in
Europe after Cisco Systems <CSCO.O>, the largest U.S. maker of
routers and switches that direct Internet traffic, reported
better-than-expected quarterly results late on Tuesday.
Nokia <NOK1V.HE>, Ericsson <ERICb.ST> and ASML <SML.AS>
gained about 4 percent.
Strong profits at French cement maker Lafarge <LAFP.PA>
lifted constructions stocks.
"The earnings newsflow has not been as poor as had been
expected, which has also been a bit of a support," said Mike
Lenhoff, chief strategist at Brewin Dolphin.
In the commodities market, oil fell a touch after figures
from the U.S. Energy Information Administration showed crude
oil inventories rose 5.7 million barrels last week, more than
analysts' consensus estimates of 1.6 million barrel increase.
But distillate inventories, including heating fuel and
diesel, dropped by 100,000 barrels to 105.7 million barrels,
against analysts' expectation of an 800,000 barrel increase.
"Traders were trying to comb the EIA data for any bullish
feature and they found it in distillates," Jim Ritterbusch,
president of Ritterbusch & Associates, said.
Traders also remained concerned about supply disruptions in
Nigeria. Also, concerns surfaced over supplies from Iran, the
world's No. 4 oil producer, when Tehran earlier this week said
it would refuse nuclear inspections.
U.S. light sweet crude oil <CLc1> was off 6 cents at
$121.78 per barrel after setting a new high at $122.81. London
Brent crude <LCOc1> set a record high of $121.47, and was up 35
cents at $120.66.
The dollar gained, bolstered by comments by Kansas City Fed
President Thomas Hoenig late on Tuesday that rates will need to
be raised in a timely way as the central bank grapples with a
serious threat of inflation.
The euro fell on reports showing euro zone retail sales
were much weaker than expected, while German manufacturing
orders unexpectedly fell by 0.6 percent in March -- underlining
concerns about slowing economic growth in the region.
A run of poor economic data -- France reported a record
trade deficit for March -- has pressured the euro in recent
weeks after it hit a record high above $1.60, peeling away
perceptions the euro area was insulated from a U.S. downturn.
The dollar gained against major currencies, with the U.S.
Dollar Index <.DXY> up 0.81 percent at 73.589.
The euro <EUR=> fell 0.96 percent at $1.5381, and against
the yen, the dollar <JPY=> rose 0.52 percent at 105.28.
In the U.S. Treasury market, Hoenig's comments about
inflation also cast a shadow.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
1/32 to yield 3.93 percent. The 2-year U.S. Treasury note
<US2YT=RR> rose /32 to yield 2.40 percent. The 30-year U.S.
Treasury bond <US30YT=RR> rose 6/32 to yield 4.66 percent.
Gold fell more than 1 percent as speculators booked profits
and turned their attention to other asset classes. However,
trong oil prices limited declines, analysts said.
Spot gold prices <XAU=> fell $9.00, or 1.03 percent, to
$866.05.
Asian stocks retreated as companies sensitive to high fuel
costs, such as airlines, fell.
Japan's Nikkei average <> closed 0.4 percent higher as
the country's financial markets reopened after being closed on
Monday and Tuesday for national holidays.
(Editing by Leslie Adler)
