(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, April 22 (Reuters) - Oil prices surged to record
highs near $120 a barrel as the dollar plumbed new lows against
the euro on Tuesday, reigniting U.S. inflation worries and
highlighting the weak state of the world's biggest economy.
Oil's surge darkened the mood on Wall Street, fueling
concerns about the peril of higher energy costs to consumer
spending and corporate profits.
U.S. stocks fell sharply after several companies lowered
their profit outlooks due to slowing economic growth, with
McDonald's Corp reporting its first monthly decline in five
years in sales at established restaurants.
U.S. crude oil <CLc1> hit an all-time peak of $119.90,
boosted by supply worries from key producers Russia and Nigeria
and a jump in demand last month from China, the second-largest
energy consumer after the United States.
The euro rose above $1.60 for the first time since its 1999
inception as expectations rose the European Central Bank may
hike benchmark interest rates in a move to curb inflation. The
price of gold rose more than 1 percent on the weak dollar,
which makes gold cheaper for holders of other currencies. The
surge in oil also fueled the demand for gold as an alternative
investment
"(Oil) has done nothing but go straight up, and obviously
it has put a damper on any type of economic recovery. At a
certain time, the consumer is just going to have to stop
spending," said Angel Mata, managing director of listed equity
trading at Stifel Nicolaus Capital Markets in Baltimore.
The Dow Jones industrial average <> fell 104.71 points,
or 0.82 percent, to 12,720.31. The Standard & Poor's 500 Index
<.SPX> fell 12.22 points, or 0.88 percent, to 1,375.95. The
Nasdaq Composite Index <> declined 31.10 points, or 1.29
percent, at 2,376.94.
Microchip maker Texas Instruments said its second-quarter
earnings would be weaker than expected due to an uncertain
economy as it cited customer caution and weak demand for
high-end cell phones. Its shares fell 5.8 percent.
Health insurer UnitedHealth Group Inc <UNH.N> posted
lower-than-expected quarterly profit and slashed its full-year
earnings forecast. The company's shares fell 9.7 percent
percent.
An index of airline stocks <.XAL> plunged 12.4 percent, and
an index of retailers' shares< .RLX> fell 2.2 percent,
reflecting fears about the toll of rising energy costs.
EUROPEAN SHARES FALL, LED BY BANK STOCKS
European shares fell for a second consecutive day, led
lower by banks after Royal Bank of Scotland, Britain's
second-largest bank, unveiled a record rights issue to cover
increased write-downs on the value of assets.
"This indicates that the crisis is not over yet and that we
may see further surprises," said Carsten Klude, chief economist
at M.M. Warburg in Hamburg, Germany.
"The risk that profit forecasts are too high prevails.
Especially forecasts for the second half of the year are still
too optimistic," he said.
The pan-European FTSEurofirst 300 index <> closed
down 0.6 percent at 1,304.56 points.
The DJ Stoxx European banking sector index <.SX7P> fell 1
percent.
RBS's 12 billion pound ($23.70 billion) rights issue will
be the biggest ever, and the bank also said it would sell
assets to generate 4 billion pounds in core capital this year
to repair one of the sector's most stretched balance sheets.
RBS shares fell 3.9 percent
In Asia, Japan's Nikkei stock average <> declined 1.1
percent, weighed by autos and falling financial stocks on
worries about the U.S. banking sector.
World stocks on a MSCI measure <.MIWD00000PUS> were down
0.33 percent at 382.69.
The surge in oil prices is part of a rally that has seen
prices climb more than five-fold since 2002, driven by booming
demand from China and other emerging markets that has coincided
with long-term supply constraints.
A slumping U.S. currency also helped boost
dollar-denominated commodities like oil and attracted
speculative investment flows from hedge funds.
U.S. crude <CLc1> settled up $1.89 at $119.37 a barrel
slightly below the peak of $119.90 hit earlier. London Brent
crude <LCOc1> gained $1.52 to settle at $115.95 a barrel, after
rising to a record of $116.75.
In Europe, a member of the ECB Governing Council said the
bank would move interest rates if needed to slow inflation to
its target of just below 2 percent.
European bonds declined after the comments, widening the
yield advantage of German bunds over U.S. Treasuries with
similar maturities, further weakening the dollar.
Hawkish comments from European Central Bank policy-makers
lifted the euro and gold's appeal as a hedge against the
falling U.S. currency. The comments from ECB officials
supported the view that benchmark rates in the euro zone are
not likely to come down soon.
The dollar fell against major trading-partner currencies,
with the U.S. Dollar Index <.DXY> down 0.39 percent at 71.383.
The euro <EUR=> rose 0.45 percent at $1.5977, and against
theyen, the dollar <JPY=> fell 0.18 percent at 103.05.
Spot gold <XAU=> in New York rose as high as $925.30 an
ounce and traded at $920.65/922.05 in the afternnoon.
U.S. Treasury debt prices were mixed. Gains in longer-dated
debt were limited by an unexpectedly mild slide in March home
sales, which added to doubts that the Federal Reserve would
continue cutting interest rates aggressively.
The news weighed on shorter-dated Treasuries and a heavy
slate of government bond auctions added to the pressure.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
6/32 to yield 3.71 percent. The 2-year U.S. Treasury note
>US2YT=RR> fell 2/32 to yield 2.21 percent. The 30-year U.S.
Treasury bond <US30YT=RR> rose 18/32 to yield 4.46 percent.
(Additional reporting by Vivianne Rodrigues, Matthew Robinson,
Burton Frierson and Cal Mankowski in New York, and Atul Prakash
and Tamora Vidaillet in London; Editing by Leslie Adler)
