* Oil price drops below $40 a barrel
* Gold down to $870 an ounce
* Stocks markets gain as year-end nears
By Jeremy Gaunt, European Investment Correspondent
LONDON, Dec 30 (Reuters) - Oil and gold prices eased on
Tuesday after recent price spikes related to violence in the
Middle East, while the dollar fell against major currencies and
stocks were generally higher.
Wall Street looked set for a positive start.
It was the last trading day of the year for some financial
markets. Japan's Nikkei average <> closed with a 42 percent
loss for 2008, the worst in its 58-year history.
"2008 was the year of the serpent, everyone got bitten,"
said Paul Biddle, a fund manager with Souls Funds Management in
Australia.
But investor fears stemming from Israel's bombardment of
Gaza appeared to be easing. Demand concerns overwhelmed supply
fear on oil markets with crude <CLc1> falling below $40 a barrel
to around $39.45.
Oil is heading for a loss of nearly 60 percent in 2008 after
reaching an all-time high earlier in the year.
Investors also booked profits in gold after it rallied to an
11-week high on Monday. It <XAU=> was down 0.8 percent at $870
an ounce.
Israel rejected any truce with Hamas Islamists on Tuesday
and said it was ready for "long weeks of action" on a fourth day
of the fiercest air offensive in the Gaza Strip in decades.
Medical officials put the total Palestinian death toll since
Israel launched its offensive on Saturday as Gaza gunmen stepped
up rocket fire, at 348 and more than 800 wounded. []
END-YEAR RALLY
European stocks opened higher, adding to the previous day's
gains as most of the region's bourses entered the last full-day
session of a dire year for investors.
The pan-European FTSEurofirst 300 index <> was up 0.9
percent, but still down more than 45 percent for the year.
"Investors realise that a lot of the bad news is out of the
way ... It has been a very difficult year for all parties.
(Investors will) be glad to get it out the way and start the new
year," said Manoj Ladwa, a derivatives broker at ETX Capital in
London.
Japan's Nikkei earlier rose 1.3 percent to 8859.56.
On currency markets, the dollar fell 1 percent against a
basket of currencies <.DXY>. The euro gained 1.3 percent to
$1.4166 <EUR=> and the dollar fell 0.3 percent to 90.26 Japanese
yen <JPY=>.
The euro again flirted with parity against Britain's pound
<EURGBP=>.
Two- and 10-year euro zone government bond yields fell to
their lowest level since the introduction of the euro, before
recovering.
Two-year yields <EU2YT=RR> have fallen 50 percent since
January, while 10-year yields <EU10YT=RR> are a third lower than
at the start of the year as investors sought less risky assets
and as interest rates were slashed.
"Despite significant and realistic concerns about supply,
whichever way investors look the potent mix of financial sector
woes and the macro-economic feedback loop have ensured that
bonds remained the default instrument of choice," said Nomura
rate strategist Sean Maloney.
Two-year bond yields fell to 1.691 percent, their lowest
level since the introduction of the euro in January 1999, but
were last at 1.781 percent, up 3 basis points on the day.
(Additional reporting by Rebekah Curtis and Kirsten Donovan;
editing by Chris Pizzey)
