* Oil surges on Libya turmoil, prompting share sell-off
* Wall Street set to join global share sell off
* U.S. Treasuries get safe-haven flows
By Jeremy Gaunt, European Investment Correspondent
LONDON, Feb 22 (Reuters) - World stocks fell sharply on
Tuesday as revolt in Libya drove oil prices to 2-1/2 year highs,
prompting fears of disruption to global economic growth.
Widespread risk aversion boosted the Swiss franc
and prompted strong flows into U.S. Treasury bonds. U.S. stock
index futures also tumbled, suggesting significant losses on
Wall Street when it opens.
U.S. crude futures <CLc1> hit a 2-1/2 year high and were
later up nearly 8 percent at more than $93 a barrel on the
latest contract's last day of trading, as deadly clashes wracked
exporter Libya's biggest cities.
Brent oil <LCOc1> was up more than 1 percent a barrel at
nearly $107, somewhat shy of Monday's intra-day 2-1/2 year peak.
Libya is by no means the world's largest oil producer,
ranking third in Africa after Nigeria and Angola, but investors
are concerned about the spread of trouble and a serious
disruption to supply.
"Investors are scaling down on exposure across the board,"
said Richard Falkenhall, currency strategist at SEB in
Stockholm. "Libya is the first major oil exporting country to be
affected ... if this spreads to other oil exporting countries,
it will not be a good sign."
Adding to the uncertain mood, two Iranian ships entered the
Suez Canal on Tuesday on their way to the Mediterranean, a move
that is bound to anger Israel. []
Investors are primarily concerned that Middle East/North
Africa trouble will keep oil prices high, driving up inflation,
cutting into corporate profits and crimping economic growth.
This could be seen most clearly on Tuesday in MSCI's
benchmark emerging market stock index <.MSCIEF>, which was down
1.6 percent. Leading emerging market economies are among the
fastest growing in the world and the most susceptible to
inflationary pressure.
Globally, world stocks as measured by MSCI <.MIWD00000PUS>
were down around three-quarters of a percent. Europe's
FTSEurofirst 300 <> was down 1 percent. Japan's Nikkei
<> earlier lost 1.8 percent.
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FLIGHT TO SAFETY
The risk-averse mood triggered a broad flight to safety. The
yield on 10-year U.S. Treasuries <US10YT=TWEB> fell 7 basis
points to 3.509 percent. Yields on core euro zone debt
<DE10YT=TWEB> lost 3 basis points to 3.160 percent.
"The situation in the Middle East is overshadowing
everything else, and we've broken a series of technical levels
on the way up," a trader said.
On foreign exchange markets, the dollar initially rallied
broadly, but was later only slightly up on a basket of major
currencies <.DXY>.
This was mainly due to a recovery by the euro, which was
flat on the day a $1.3671 <EUR> after hawkish talk from a
European Central Bank member.
The euro <EURCHF=R> fell against the Swiss franc, pushing
the traditional safe-haven currency to its strongest in three
weeks.
Separately, the New Zealand dollar hit a near two-month low
against its U.S. counterpart after investors fretted about the
economic damage caused by a strong earthquake which rocked the
country's second biggest city, spurring speculation about the
chance of an interest rate cut.
(Additional reporting by Naomi Tajitsu and William James;
Editing by Toby Chopra)
