(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, April 15 (Reuters) - Oil prices surged to a new
peak near $114 a barrel on Tuesday and U.S. and European
government debt prices fell amid concerns inflation fears will
limit interest rates cuts, especially in Europe.
The dollar edged higher after surprisingly strong U.S.
inflation and manufacturing data suggested the Federal Reserve
may not continue cutting interest rates quite so aggressively.
U.S. stocks trended lower after financial company shares
reversed an advance on fears of more financial-sector losses
and semiconductor stocks fell ahead of the release of Intel
Corp's <INTC.O> quarterly results after the market close.
Energy shares, however, jumped on both sides of the
Atlantic on the record oil prices and helped European stock
markets close higher.
The jump in oil and rising inflation, boosted by higher
prices for energy and food, gave investors pause. British Prime
Minister Gordon Brown urged OPEC members to boost production to
counter rapidly rising oil prices, which have shot up 80
percent since a year ago. U.S. rice futures set a new high,
extending this year's gains to more than 60 percent.
"One thing that is clearly driving the oil price is that
the U.S. dollar has gotten substantially weaker in the past
several months and quarter," said Richard Batty, energy analyst
at Standard Life.
Oil and other commodities have rallied in recent months due
to record weakness in the U.S. dollar. A weak dollar tends to
raise prices for commodities denominated in that currency by
boosting non-U.S. spending power and by attracting investors
seeking an inflation hedge.
The euro's strength, meanwhile, could cause serious harm
eventually to the economies of the euro zone, the chairman of
the 15-nation bloc's finance ministers' group said.
Eurogroup Chairman Jean-Claude Juncker said he hoped
financial markets would soon take into account the alarm
expressed last week by Group of Seven policy-makers at recent
excessive volatility in currency markets.
U.S. STOCKS HIT BY PROFIT WARNINGS
Several profit warnings also weighed on the U.S. equity
market and overshadowed better-than-expected results from
diversified health-care company Johnson & Johnson <JNJ.N>.
Financial services firm State Street Corp <STT.N> told
investors it faces billions of dollars of unrealized portfolio
losses, sending its shares down more than 7 percent.
A profit warning from electronics distributor Avnet Inc
<AVT.N> sent semiconductor stocks and chip equipment makers
lower, making them the biggest drag on the Nasdaq. Avnet shares
slumped 13 percent.
"When confidence is razor thin, whether there's good news,
bad news or no news, people are nervous," said Al Goldman,
chief market strategist at Wachovia Securities in St. Louis.
U.S. benchmark indexes were down.
The Dow Jones industrial average <> was down 4.73
points, or 0.04 percent, at 12,297.33. The Standard & Poor's
500 Index <.SPX> was down 0.53 points, or 0.04 percent, at
1,327.79. The Nasdaq Composite Index <> was down 2.19
points, or 0.10 percent, at 2,273.63.
European shares rose after five days of losses, buoyed by
gains in food retailers after Tesco <TSCO.L> delivered upbeat
results and in energy stocks, which also benefited on news of a
giant off-shore oil field in Brazil.
Repsol <REP.MC> and BG Group <BG.L> gained, along with
Brazil's Petrobras <PETR4.SA><PBR.N>, after news of a new
offshore find in Brazil, which may be the largest in 30 years.
The FTSEurofirst 300 index <> of top European shares
ended up 0.52 percent at 1,281.62 points, having risen earlier
by as much as 1.2 percent.
State Street's warning that it faced "two unrealized
losses" tempered European gains because of concerns in Europe
that the credit crunch can still wreak havoc.
In Asia, Japan's Nikkei average <> clawed back 0.5
percent after a 3 percent drop on Monday, while MSCI's measure
of other Asia Pacific stocks <.MIAPJ0000PUS> rose 0.5 percent.
GOVERNMENT DEBT FALLS WITH HIGHER INFLATION
Euro zone government bonds fell and the yield curve
flattened amid persistent inflation fears, and U.S. Treasury
debt prices fell on accelerating producer price inflation.
Surging costs for energy and food worldwide have pushed
U.S. headline inflation readings near their highest in decades
and core readings of inflation -- which exclude food and energy
prices -- above the U.S. central bank's comfort threshold.
"Right now the inflation bogey man is spooking the Treasury
market a bit," said John Spinello, a Treasury bond strategist
with Jefferies & Co. in New York.
U.S. Treasury debt prices were lower.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 12/32, with the yield at 3.5565 percent. The 2-year U.S.
Treasury note <US2YT=RR> was down 2/32, with the yield at
1.7907 percent. The 30-year U.S. Treasury bond <US30YT=RR> was
down 32/32, with the yield at 4.4088 percent.
The dollar was up against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> up 0.32 percent
at 71.987. The euro <EUR=> was down 0.32 percent at $1.5793,
and against the yen, the dollar <JPY=> was up 0.39 percent at
101.46.
U.S. light sweet crude oil <CLc1> rose $1.51, or 1.35
percent, to $113.27 per barrel, after touching a record high
of $113.93.
Spot gold prices <XAU=> rose $4.10, or 0.44 percent, to
$928.20.
Gold pared gains after rising 1.2 percent as the dollar's
rise prompted bullion investors to trim trading positions, but
record high oil prices underpinned the market.
(Additional reporting by Cal Mankowski, John Parry and Steven
C. Johnson in New York and Amanda Cooper, Randy Fabi and Atul
Prakash in London; Editing by Leslie Adler)
