(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, April 15 (Reuters) - Oil prices surged to a new
peak over $114 a barrel on Tuesday and the dollar rose after
surprisingly strong U.S. inflation and manufacturing data
suggested the Federal Reserve may slow its interest
rate-cutting campaign.
U.S. stocks rose in a see-saw session as oil's rise helped
the energy sector and better-than-expected results at several
U.S. regional banks boosted financial shares.
Fears that rising inflation will limit interest rates cuts,
especially by the European Central Bank, pushed government debt
prices lower in Europe and the United States.
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 the dollar's record weakness. Dollar-denominated commodities
tend to rise on a weak currency as it boosts non-U.S. spending
power and attracts investors seeking an inflation hedge.
In U.S. equities, financial shares rose after first-quarter
profit exceeded forecasts at U.S. Bancorp <USB.N>, Regions
Financial Corp <RF.N>, M&T Bank Corp <MTB.N> and Marshall &
Ilsley Corp <MI.N>.
The regional banks expressed confidence they could
withstand soaring credit losses as the U.S. housing market and
economy slump.
"Sentiment has been pretty negative, but it's improved a
bit today as you had a few decent earnings reports this
morning," said Michael James, senior trader at regional
investment bank Wedbush Morgan in Los Angeles.
"The financials are a bit oversold so we're seeing a bounce
there, and there's also an expectation JPMorgan's earnings will
be good tomorrow."
The Dow Jones industrial average <> was up 60.41
points, or 0.49 percent, at 12,362.47. The Standard & Poor's
500 Index <.SPX> was up 6.11 points, or 0.46 percent, at
1,334.43. The Nasdaq Composite Index <> was up 10.22
points, or 0.45 percent, at 2,286.04.
The S&P financials index <.GSPF> gained 1.09 percent.
In Europe, shares rose after five days of losses, as upbeat
results by supermarket operator Tesco <TSCO.L> boosted food
retailers and record oil prices lifted the energy sector.
Also helping oil stocks was the discovery of an offshore
find in Brazil by partners Repsol <REP.MC>, BG Group <BG.L> and
Petrobras <PBR.N> which may be the largest in 30 years.
The FTSEurofirst 300 index <> of major European
shares rose 0.5 percent to 1,281.62 points. The index had lost
about 3.5 percent in the previous five sessions.
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.
EURO STRENGTH RAISES ECONOMIC CONCERN
A euro zone official, meanwhile, said the euro's strength
could cause serious harm eventually to the economies of the
15-nation bloc.
Eurogroup Chairman Jean-Claude Juncker said he hoped
financial markets would soon take into account the alarm that
policy-makers of the Group of Seven rich nations expressed last
week on recent excessive volatility in currency markets.
The dollar shed 10.5 percent versus the euro last year and
is more than 8 percent weaker in 2008, a slide driven by the
Fed's cuts to benchmark interest rates of 3 percentage points
since the onset of a housing-led credit crunch in August.
In late afternoon trade on Tuesday, the euro fell 0.4
percent against the dollar to $1.5778 <EUR=>, having retreated
from an overnight peak of $1.5875. Last week, it rose to
$1.5912, the highest level since its 1999 launch.
"The New York manufacturing data, in particular, leaves us
with the hope that things are not that bad in the U.S.
economy," said Matthew Strauss, senior currency strategist, at
RBC Capital Markets in Toronto.
The dollar rose against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> up 0.45 percent
at 72.081.
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>
fell21/32 to yield 3.5908 percent, and the 2-year U.S. Treasury
note <US2YT=RR> fell 6/32 to yield 1.8479 percent.
U.S. crude <CLc1> rose to a record above $114 a barrel
after settling up $2.03 to $113.79. London Brent crude <LCOc1>
settled $1.47 higher at $111.31 a barrel after hitting an
all-time high of $112.08 earlier.
Gold ended higher but off its session peak after key U.S.
data prompted bullion investors to trim trading positions, but
record-high oil prices underpinned the market.
Spot gold prices <XAU=> rose $2.50, or 0.27 percent, to
$926.60.
(Additional reporting by Richard Valdmanis, Cal Mankowski,
John Parry, Steven C. Johnson and Frank Tang in New York and
Atul Prakash in London; Editing by Leslie Adler)
