* OPEC mulls boosting production after Libya unrest
* Euro slips for 2nd day on euro zone debt concerns
* Greek 10-year yields hit euro-era high
* Global stocks rise on oil price relief
(Updates prices to mid-afternoon)
By Walter Brandimarte
NEW YORK, March 8 (Reuters) - Oil prices fell on Tuesday as
OPEC considered raising production for the first time in more
than two years, while the euro slipped for a second day on
renewed euro zone debt worries.
U.S. stocks rallied as the fall in crude prices eased
worries the economic recovery could be choked off. The recovery
in stocks appeared tentative, however, as investors feared
unrest in Libya and the Middle East could still drive oil
prices up, a day after they hit a 2-1/2-year high.
An official oil output increase by the Organization of the
Petroleum Exporting Countries would signal the group's
determination to cap prices, but continued violence in Libya
left investors jittery. The country's oil output, normally 1.6
million barrels per day, is estimated to be down by about 1
million barrels per day.
OPEC oil producers are consulting about a supply boost,
Kuwait's oil minister said, but many in the group remain
skeptical. []
"At the moment, I think we just remain nervous -- the
situation in the Middle East is still fluid," said Frank Lesh,
a futures analyst and broker at FuturePath Trading LLC in
Chicago. "We'd like to see a little more clarity there, and we
certainly don't have that."
Brent crude <LCOc1> prices dropped 1.7 percent to $113.08
per barrel, while U.S. light crude futures <CLc1> were 0.4
percent lower at $105.02.
The three major U.S. stock indexes rallied, also supported
by an upbeat profit forecast from Bank of America <BAC.N>.
The Dow Jones industrial average <> rose 130.71 points,
or 1.08 percent, to 12,220.74, while the Standard & Poor's 500
Index <.SPX> climbed 11.44 points, or 0.87 percent, to
1,321.57. The Nasdaq Composite Index <> was up 19.54
points, or 0.71 percent, at 2,765.17.
Bank of America shares shot up 4.4 percent to $14.65.
Financials led gains on the S&P 500, with the S&P financial
index <,GSPF> up 2.2 percent.
In Europe, the FTSEurofirst 300 <> index of top
shares ended up 0.31 percent at 1,147.43 points, after
seesawing between positive and negative.
GREEK YIELDS AT RECORD HIGH
The euro fell against the dollar as concerns about the debt
situation of peripheral euro zone countries increased with
expectations of an interest rate hike by the European Central
Bank next month.
A rise in interest rates would push up borrowing costs
across the 17-country euro zone, increasing the cost of funding
for highly indebted countries.
Concerns about Europe's debt problems have been on the rise
since Moody's cut Greece's credit ratings by three notches on
Monday, signaling more downgrades are on the way.
Greece's borrowing costs spiked on Tuesday, with yields
paid by 10-year government bonds <GR10YT=TWEB> climbing to
12.946 percent, their highest since the launch of the euro
currency.
The euro <EUR=> fell 0.5 percent to $1.3906. It climbed to
a four-month high above $1.40 on Monday after ECB president
Jean-Claude Trichet said last week that euro-zone interest
rates could rise as early as next month.
"The problem with the interest rate-driven trade and
Trichet's hawkish comments is that you have to see the other
issues behind it," said John McCarthy, director of foreign
exchange at ING Capital Markets in New York. "Higher rates will
be devastating for the peripheral countries."
Gold eased below $1,430 an ounce, falling further from
Monday's record high after the drop in oil prices eased some
concerns about inflation. Spot gold <XAU=> was last at
$1,425.00.
The price of oil, however, was still considered a wild card
in financial markets as the fighting in Libya continued.
"The market is now waiting for the next piece of news to
unfold," said Harry Tchilinguirian, head of commodity markets
strategy at BNP Paribas, who said $2 moves were not surprising
in such a volatile market.
"A turn for the worse for the market would be oil
infrastructure being hit as a result of the fighting. The
demise of the current regime or a more forceful statement from
OPEC followed by an increase in production would be significant
too."
Expectations that the disruption to Libya's oil supply will
be prolonged drove more analysts to revised their oil price
forecasts higher on Tuesday. Goldman Sachs increased its
second-quarter 2011 Brent <LCOc1> forecast by $4.50 a barrel to
$105. Bank of America-Merrill Lynch raised its outlook to an
average price of $122 in the second quarter, up from $86.
The U.S. government's energy forecaster boosted its
full-year price forecast by $9 to $102 a barrel this year --
above the average $99.75 in 2008, when oil hit a record.
But prices of U.S. government debt fell as investors felt
comfortable buying stocks. Some were also seeking price
concessions in this week's U.S. Treasury auctions of $66
billion in debt.
Prices of 10-year Treasury bonds <US10YT=RR> fell 8/32,
while their yield rose to 3.544 percent. Despite the fall in
prices, the government found strong demand during Tuesday's
sale of three-year notes.
(Additional reporting by Wanfeng Zhou, Chuck Mikolajczak,
Nick Olivari, Brenda Goh and William James; Editing by Leslie
Adler)
