(Updates with U.S. markets, changes dateline to New York,
byline)
* Oil surges to record above $132 barrel, sapping stocks
* Euro hits one-month peak vs dollar, gold at month high
By Herbert Lash
NEW YORK, May 21 (Reuters) - Oil stormed to new record
highs above $132 a barrel on Wednesday, stoking fears of global
inflation and undermining equity markets that have recently
been erasing their 2008 losses.
A bullish economic outlook for Germany lifted the euro to a
one-month high against the dollar and deflated euro zone bond
demand by strengthening views that the European Central Bank
would not need to cut interest rates.
The dollar's fall means more of the weaker U.S. currency is
needed to buy a barrel of oil. Oil prices surged more than $3
to a record intraday record of $132.08, reaching its high
after weekly data from the U.S. government showed stocks of
crude had fallen by 5.4 million barrels.
While equities were mostly undermined by rising oil and
inflation pressures, energy heavyweights Chevron and
ConocoPhillips hit lifetime highs.
"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.
Still, he added, SocGen does not expect wages and prices to
spiral upward in concert with the commodities.
The rising prices for materials have stoked fears of
broader inflation and posed problems for central banks under
pressure to cut interest rates to stimulate slowing economies.
Corn and soybean futures in Chicago rallied, largely
because corn and soybeans tend to track the energy markets
since the farm crops have begun playing expanded roles in the
biofuels industry.
A report from Germany's Ifo economic research institute
eased some immediate concerns about Europe's economy, showing
that corporate sentiment had unexpectedly improved in May,
pushing euro bonds lower.
U.S. Treasury debt prices slipped in line with euro zone
bonds. The benchmark 10-year U.S. Treasury note <US10YT=RR>
fell 15/32 to yield 3.84 percent.
After midday, the Dow Jones industrial average <> was
down 39.41 points, or 0.31 percent, at 12,789.27. The Standard
& Poor's 500 Index <.SPX> was up 1.42 points, or 0.10 percent,
at 1,414.82. The Nasdaq Composite Index <> was up 4.30
points, or 0.17 percent, at 2,496.56.
The surge in oil prices hit big manufacturers such as
Boeing Co <BA.N>, down more than 3 percent, and General
Electric <GE.N>, down more than 1 percent.
Energy-Airline stocks, heavily influenced by the cost of
fuel, also lost ground as did retailers, home builders and
financial services stocks. The airline index <.XAL> slid nearly
6 percent.
"The higher oil price is going to affect the consumer. It
affects the psychology much like lower stock prices affect the
wealth effect," said Alan Lancz, president of investment
advisory firm Alan B. Lancz & Associates Inc in Toledo, Ohio.
"Something has got to give. If it's not oil, it's going to be
stock prices."
European stocks extended the previous day's sharp losses as
the spike in crude oil heightened inflation fears and clouded
the outlook for corporate profits.
Oil stocks such as BP <BP.L> and Royal Dutch Shell <RDSa.L>
helped cushion the market's fall. BP gained 3.2 percent, while
Royal Dutch Shell surged 4.5 percent.
The FTSEurofirst 300 <> index of top European shares
closed 0.7 percent lower at 1,340.63 points, its lowest close
since May 1.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.50 percent at 72.078.
The euro <EUR=> rose 0.64 percent at $1.5756, and against
the yen, the dollar <JPY=> fell 0.15 percent at 103.43.
U.S. spot gold prices <XAU=> rose $8.25 to $926.60 as gold
hit its highest level in a month.
In Asia, stocks fell for a second consecutive day and fed a
a rally in safe-haven government debt on fears consumer demand
will falter in the face of high oil prices.
Japanese stock indexes were the biggest decliners in the
region, with the benchmark Nikkei <> falling 1.7 percent
to a one-week low.
The MSCI index of Asian stocks excluding Japan
<.MIAPJ0000PUS> slid 0.3 percent to 495.14 after hitting a
four-month high on Monday.
(Reporting by Ellis Mnyandu, Steven C. Johnson in New York and
Lewa Pardomuan, Barbara Lewis and Alex Lawler in London and
Blaise Robinson in Paris)
(Reporting by Herbert Lash. Editing by Richard Satran)
