By Jeremy Gaunt, European Investment Correspondent
LONDON, Sept 1 (Reuters) - Financial markets began the month
pressured on all sides on Monday with Hurricane Gustav lifting
the price of oil, economic fear driving equities lower and gloom
about Britain's downturn knocking sterling to a 12-year low.
Investors also appeared unhappy with Commerzbank's <CBKG.DE>
$14.5 billion purchase of Dresdner Bank from Allianz <ALVG.DE>.
The dollar was generally stronger and euro zone government
bond yields fell as investors bought into safe-haven plays. U.S.
markets were closed for the Labor Day holiday.
Crude oil prices rose around $1.50 a barrel as Gustav shut
down nearly all offshore oil output in the U.S. Gulf and
threatened the Louisiana coast.
Prices pared earlier sharp gains, however, as traders
pondered whether the Category 3 storm would leave lasting
damage. Nearly 2 million people have fled the coast.
"This is definitely a dangerous storm but I think most of
the market is in a wait-and-see mode, waiting to see (if there
are) disruptions to oil facilities and pipeline infrastructure
before they make a big move," said Gerard Burg, a commodities
analyst at the National Bank of Australia in Melbourne.
U.S. light crude for October delivery <CLc1> was up $1.47 at
$116.93 a barrel, having briefly surged above $118 a barrel.
While higher crude prices generally weigh on stocks,
investors are mostly concerned at the moment with worries about
the depth of a global economic slowdown.
This was clearest on Monday on currency markets, where
Britain's pound fell to a 12-year low on a trade-weighted basis.
It was also down three-quarters of a percent at around $1.80
<GBP=>, compared with more that $2 in July.
The declines followed Chancellor of the Exchequer (finance
minister) Alistair Darling's comments that the UK's economic
downturn is likely to be deeper and last longer than originally
feared and might turn out to be the worst for 60 years.
"Most people believed that things were probably
deteriorating faster in the UK than the government was
admitting, but the fact that we've seen the chancellor come out
and admitting that things are far worse have put sterling under
pressure," said Ian Stannard, senior currency strategist at BNP
Paribas.
TOO MUCH
Equity markets, in the meantime, were kicking off the month
on a down note, generally gloomy about the economic outlook.
European shares fell sharply in early trade, led by banks
as Commerzbank tumbled more than 6 percent after agreeing its
deal to buy Dresdner.
The FTSEurofirst 300 index of top European shares <>
was down around 0.8 percent, starting the month off on a weak
note after notching up a gain of 1.2 percent in August, only its
second monthly gain in 10 months. Allianz was down nearly 1
percent.
Investors appeared to believe the deal was too expensive.
"On a first glance we don't like the transaction at all," DZ
Bank said in a note.
Earlier, Japan's Nikkei stock average <> shed 1.8
percent as Honda Motor Co <7267.T> and other exporters fell on
worries about the economy and a slightly stronger yen.
The benchmark Nikkei shed 238.69 points, completely erasing
last week's gains, to finish at 12,834.18. The broader Topix
<> lost 1.9 percent to 1,230.64.
Euro zone government bond prices shot higher after the
gloomy comments from Britain's Darling triggered concern that a
similar outlook would be felt throughout the euro zone.
Two-year yields fell 8 basis points to 4.041 percent
<EU2YT=RR> while 10-year yields were 3 basis points down at
4.141 percent <EU10YT=RR>.
