(Updates with U.S. markets, changes dateline to New York,
byline)
* Oil retreats after hitting new high above $135 a barrel
* Dollar gains on surprise drop in U.S. jobless claims
* U.S. long bond falls on oil-related inflation concerns
By Herbert Lash
NEW YORK, May 22 (Reuters) - Oil retreated after roaring to
a new peak above $135 a barrel on Thursday, helping give U.S.
and European stocks a modest lift as the sharp revival of
inflation concerns this week kept trading restrained.
Euro zone and U.S. government bond prices fell. The recent
rise of commodity prices along with better-than-expected
economic data this week in Europe and the United States shifted
investors' focus squarely to inflation.
The dollar rose, boosted by a surprise drop in U.S. jobless
claims. Still, support was fragile as record high oil prices
stoked worries about the health of a flagging U.S. economy.
Oil hit new peaks for a third straight day, touching an
all-time high of $135.14 in London and a record $135.09 in New
York before losing steam in response to a stronger dollar.
European shares ended higher, lifted by telecom stocks and
by banks that gained on consolidation talk, while Britain's
blue-chip share index edged down in a volatile session.
U.S. stocks rebounded modestly from two straight days of
steep declines following a proposed major acquisition in the
utilities sector and a sign of strength in the jobs market.
The number of U.S. workers filing initial claims for
jobless benefits unexpectedly fell 9,000 last week to 365,000,
the U.S. Labor Department said. However, the overall number of
workers on the benefit rolls held at a four-year high.
Despite the slightly better economic news oil made
investors edgy.
"Oil is down a little bit today but the big question is at
what level does the oil price knock the pins from underneath
our economy," said Al Goldman, chief market strategist at
Wachovia Securities in St. Louis.
"Until wet some clarity about oil prices, the market is
going to have a difficult time sustaining anything on the
upside," Goldman said.
After midday, the Dow Jones industrial average <> was
up 38.92 points, or 0.31 percent, at 12,640.11. The Standard &
Poor's 500 Index <.SPX> was up 4.59 points, or 0.33 percent, at
1,395.30. The Nasdaq Composite Index <> was up 23.12
points, or 0.94 percent, at 2,471.39.
JPMorgan <JPM.N> shares rose 1.93 percent to $43.24 percent
and Citigroup <C.N> gained 2.56 percent to $21.60, making them
the top two biggest contributors to the S&P's advance.
In Europe, Telecom Italia <TLIT.MI> gained 4.6 percent on
relief that a regulator's ruling over termination rates was
less severe than expected.
Cable & Wireless <CW.L> rose 2.7 percent after it said it
was demerging its two divisions, and Vodafone <VOD.L> gained
3.1 percent as investors bet on strong results, traders said.
The pan-European FTSEurofirst 300 <> index of top
European shares ended 0.3 percent higher at 1,345.11 points,
with telecoms contributing the most to the rise.
In London, the FTSE 100 <> closed down 0.3 percent at
6,181.6, its lowest closing level in three weeks.
Inflation jitters drove debt prices higher. The 30-year
U.S. Treasury bond <US30YT=RR> fell nearly two points in price
and the euro zone's two-year Schatz <EU2YT=RR> yield pierced
4.2 percent for the first time since mid-October.
The yield, which moves inversely to price of the 30-year
bond, rose to 4.66 percent from 4.54 percent late Wednesday.
"Inflation is currently driving the market," said Bob Maes,
a fixed-income strategist at KBC in Brussels.
"With oil prices moving higher and inflation expectations
also rising, these are having an impact on the short-end of the
European bond market in particular and the yield curve is
becoming flatter every day," Maes said.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
34/32 to yield 3.93 percent and the 2-year U.S. Treasury note
<US2YT=RR> fell 8/32 to yield at 2.54 percent.
Japan's Nikkei average <> clawed its way into positive
territory, erasing a 2 percent decline, spurred by the launch
of a domestic fund and buying of energy-related stocks. The
Nikke closed up 0.4 percent.
Stocks elsewhere in Asia, gauged by the MSCI's Asia
ex-Japan index <.MIAPJ0000PUS>, declined 0.9 percent.
(Reporting by Jennifer Coogan, John Parry and Steven C.
Johnson in New York and Ikuko Kao, Lewa Pardomuan, Dominic Lau,
Ian Chua and Sitaraman Shankar in London)
(Reporting by Herbert Lash. Editing by Richard Satran)
