(Updates prices, adds Wall Street outlook)
By Jeremy Gaunt, European Investment Correspondent
LONDON, May 21 (Reuters) - Oil stormed to new record highs
above $130 a barrel on Wednesday, spurring fears of global
inflation and undermining equities.
Wall Street looked set for a poor start.
A bullish economic outlook for Germany, meanwhile, helped
the euro and deflated euro zone bond demand by strengthening
views that interest rates would not be cut.
But equities took little comfort in the face of high oil and
rising inflation pressures.
"The current inflation cycle is holding back markets and
it's the commodities that are the major problem," said Arthur
van Slooten, an equity strategist at Societe Generale in Paris,
adding that SocGen does not expect a wage-price spiral.
New York crude <CLc1> rose to a fresh high of $130.47 a
barrel while London Brent crude oil <LCOc1> also touched a new
peak at $129.92.
OPEC added to pressure by reiterating its resistance to
increasing supply to meet robust global demand.
"Market sentiment towards oil remains bullish, aided by the
soft dollar and the recent trend for analysts to revise higher
their oil price forecasts," said David Moore, commodity
strategist of Commonwealth Bank of Australia, in a report.
Rising prices of oil and other commodities have stoked fears
of inflation and posed problems for central banks under pressure
to cut interest rates to stimulate slowing economies.
A report from Germany's Ifo economic research institute
eased some immediate concerns about Europe, showing that
corporate sentiment had unexpectedly improved in May.
But the FTSEurofirst 300 <> was down 0.4 percent.
Earlier, Japan's Nikkei average <> slid 1.7 percent, or
233.79 points to close at 13,926.30. The broader Topix index
<> fell 2.1 percent or 29.75 points to 1,370.09.
EURO JUMPS, BONDS FALL
The euro jumped to a one-month high against the dollar and
European government bond prices fell after the Ifo figures.
The euro <EUR=> shot up to $1.5766 <EUR=>. The data fuelled
the view that the single European currency would maintain its
interest rate advantage against the dollar.
"It will clearly fuel speculation that the ECB may hike
rates later in the year -- we are already seeing that the spread
between the euro zone and U.S. is widening quite significantly,"
said Michael Klawitter, currency strategist at Dresdner
Kleinwort in Frankfurt.
Euro zone government bond prices were sharply lower.
Interest rate sensitive two-year yields pushed back above
4.0 percent to reach 4.078, up 8 basis points. Ten-year bond
yields <EU10YT=RR> were up 5 basis points at 4.241 percent.
(Editing by Ruth Pitchford)
