* Gaza fighting pushes oil up over $2 a barrel
* Gold gains 1.9 percent
* European shares lifted by energy stocks
By Jeremy Gaunt, European Investment Correspondent
LONDON, Dec 29 (Reuters) - Oil and gold prices surged on
Monday following a flare up in Middle East violence, while an
ensuing rally in resources-related stocks helped equities post
solid gains.
Wall Street looked set for a moderately positive start.
On currency markets, Britain's pound hit another record low
against the euro and the Swiss franc gained on safe-haven plays.
The dollar was broadly weaker.
Investors headed towards year-end with a new risk factor,
this time in the Middle East, to add to the worst financial
crisis in decades and a global recession.
Israeli warplanes pounded the Hamas-ruled Gaza Strip for a
third consecutive day on Monday as the Jewish state prepared to
launch a possible invasion.
More than 300 Palestinians have been killed in what Israelis
said was a response to almost daily rocket and mortar fire from
Gaza after the Islamist Hamas group ended a six-month ceasefire
a week ago.
Oil prices rose $2.70 a barrel to more than $40 a barrel
<CLc1>.
Oil markets are ending a manic year in which crude surged to
a record at close to $150 a barrel in July before crashing down
amid fears about a sharp slowdown in the global economy.
Gold prices <XAU=> extended last week's rally to gain around
1.9 percent to $883 an ounce.
"It's a terrible situation and it just seems to be again
causing major concerns for all the markets," Peter McGuire,
managing director at Commodity Warrants Australia, said of the
Gaza violence.
"But where it's going, nobody knows. Who can speculate on
war?" he said.
SHARES ADVANCE
European shares rose, led by energy and metals stocks.
The FTSEurofirst 300 <> index of top European shares
was up 1 percent after closing 0.5 percent lower in the previous
trading session. The benchmark has lost 46 percent so far this
year.
BP <BP.L>, Royal Dutch Shell <RDSa.L>, gas producer BG Group
<BG.L> and Tullow Oil <TLW.L> added between 3.5 and 5.3 percent.
"The trading over the Christmas period has been somewhat
disappointing and therefore in the short term, the reality is
that markets are going to remain volatile and continue to be
under pressure," said Henk Potts, equity strategist at Barclays
Stockbrokers.
Earlier in Japan, the Nikkei average <> ended up 0.1
percent, helped by news that three non-life insurers including
Mitsui Sumitomo Insurance Group Holdings were in talks to merge.
The dollar fell broadly, hobbled by a grim outlook for the
U.S. economy and the Federal Reserve pouring liquidity into the
banking system.
The euro rose 1.8 percent to $1.4311 <EUR=> and was up 1.7
percent against the pound at 0.97 pence <EURGBP=>, an all time
low and bordering on parity.
On euro zone government bond markets, the interest
rate-sensitive two-year Schatz yield <EU2YT=RR> was down 4 basis
points at 1.778 percent.
(Editing by Mike Peacock)
