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LONDON)
NEW YORK, April 25 (Reuters) - Oil prices surged more than
$3 a barrel on Friday after a U.S. contracted cargo ship fired
warning shots at boats suspected to be Iranian, driving down
U.S. stocks along with a survey showing U.S. consumer
confidence fell to a 26-year low in April.
The dour consumer sentiment and withering stock market put
a floor under safe-haven U.S. Treasuries, with prices easing
but pulling off lows.
The Reuters/University of Michigan Surveys of Consumers
said its final index of confidence for April fell deeper into
recessionary territory, to 62.6 from 69.5 in March, on
heightened worries over inflation and the sagging housing
market.
Crude oil prices surged over $119 a barrel as the reports
of the firing by the U.S. contract ship underscored tensions in
the Gulf and on escalating Nigeria and UK supply snags.
According to American defense officials, the Westward
Venture cargo ship chartered by the U.S. Defense Department was
traveling in international waters when two unidentified small
boats approached on Thursday. After the boats failed to respond
to radio queries and a warning flare, the cargo ship's onboard
security team fired "a few bursts" of machine gun and rifle
warning shots, according to Cmdr. Lydia Robertson, a
spokeswoman for the U.S. Navy's Bahrain-based Fifth Fleet.
On the New York Mercantile Exchange the price of June
crude<CLM8> jumped $3.26 to $119.32.
"When you look at energy prices, housing, the U.S. consumer
is still under pressure," said Subodh Kumar, chief investment
strategist at Subodh Kumar & Associates in Toronto, Canada.
"The consumer sentiment numbers will indicate that the
recent bounce we've seen in consumer discretionary stocks is a
bit premature."
In the U.S. stock market, the Dow Jones industrial average
<> was down 56.18 points, or 0.44 percent, at 12,792.77.
The Standard & Poor's 500 Index <.SPX> was down 2.69 points, or
0.19 percent, at 1,386.13. The Nasdaq Composite Index <>
was down 28.81 points, or 1.19 percent, at 2,400.11.
Shares of Microsoft skidded 6.4 percent to $29.77.
In Europe, however, stocks closed higher after Ericsson
<ERICb.ST>, the Swedish telecoms equipment maker, reported a
surprisingly strong first-quarter profit, sending its stock up
16.6 percent and driving up the technology sector.
The FTSEurofirst 300 index <> of top European shares
ended the day up 1.1 percent at 1,330.84 points.
The index finished the week up 0.3 percent, for its second
successive weekly gain and putting the FTSEurofirst on course
for its best monthly gain since October 2003.
However, patchy economic data and the unresolved credit
crunch made analysts skeptical about the chances of this rally
being sustainable.
"The economic data in Europe is starting to deteriorate ...
yet at the same time, the cyclical area of the market is
producing reasonable numbers and guidance," said Andrea
Williams, head of European equities at Royal London Asset
Management.
In currency markets, the dollar traded at three week-highs
versus the euro on Friday, boosted by a growing view the U.S.
Federal Reserve may stop cutting interest rates soon.
"It's a major shift in sentiment regarding the outlook of
interest rates and we may see the dollar strengthening until
the next Fed meeting," said Mark Meadows, a market analyst at
Tempus Consulting in Washington.
The perceived odds of the Fed keeping its benchmark
interest rate unchanged at 2.25 percent at its meeting next
week rose to about 26 percent, futures trading shows
<FEDWATCH>. Just over a week ago, futures were evenly split
between a 25 and a 50 basis point cut.
But analysts warned that the Fed isn't likely to start
hiking interest rates either as long as incoming data continues
to paint a gloomy picture of near-term U.S. growth.
"You are looking at quarter-century lows (in U.S. consumer
confidence), which is a not-so-subtle reminder ... that the Fed
may pause after next week's expected rate cut but will be in no
position to raise rates any time soon," said Kevin Flanagan,
fixed-income strategist at Morgan Stanley Global Wealth
Management in Purchase, New York.
In midday trading in New York, the euro was 0.3 percent
lower at $1.5628 <EUR=>, after dropping as low as $1.5555
earlier, a three-week low.
The dollar index, which tracks its performance against a
basket of major currencies, hit earlier a one-month high of
73.030 <.DXY>. It last traded at 72.665, putting it on track
forits best monthly performance since May 2007.
The increased worries about global inflation drove down
government bonds in developed economies, while signs that firms
are surviving the credit crisis tamed expectations for
aggressive U.S. interest rate cuts.
Japanese annual inflation jumped to 1.2 percent in March,
its highest level in a decade, triggering one of the biggest
ever sell-offs in yen bonds <2JGBv1>.
Longer-dated U.S. Treasuries and euro zone government debt
prices also fell as markets worried about surging oil, rice,
tin and other commodity prices.
Benchmark 10-year <US10YT=RR> notes fell 7/32, pushing the
yield up to 3.86 percent from 3.84 percent late on Thursday.
The 30-year long bond <US30YT=RR> slid 14/32, lifting its
yield to 4.58 percent from 4.55 percent late on Thursday.
In Asia, improvement in risk appetite pushed stock indexes
higher. Tokyo stocks rose 2.4 percent <>.
(Additional reporting by Randi Fabi, Amanda Cooper and Natsuko
Waki in London and Burton Frierson, Caroline Valetkevitch and
Vivianne Rodrigues in New York; Editing by Editing by Leslie
Adler)
