By Jeremy Gaunt, European Investment Correspondent
LONDON, July 1 (Reuters) - Tension between the United States
and Iran kept oil at near record levels above $141 a barrel on
Tuesday while equity markets kicked off the second half of the
year with more losses.
Worries about slow economic growth and rising inflation
continued to sweep across financial markets, exemplified by New
York crude oil at $141.55 a barrel <CLc1>, up $1.55 on Monday's
close which came after hitting a record above $143.
European shares lost more than 1 percent.
In a war of words between the Iranian and U.S. military,
Iran's Revolutionary Guard said Tehran would impose controls on
shipping in the Middle East Gulf and Strait of Hormuz if it were
attacked.
The U.S. Navy's Fifth Fleet said the United States and its
allies would not allow Iran to hamper shipping in the Gulf.
Roughly 40 percent of the world's traded oil moves through the
strait.
"The market has been worried about the tensions involving
Iran and that remains a supportive factor for the oil price,"
said David Moore, a commodities analyst at the Commonwealth Bank
of Australia in Sydney.
The rising price of oil -- up around 47 percent year-to-date
-- has added to overall fears on financial markets that
inflation is about to increase substantially just as developed
economies are slowing.
This, along with the fallout from the subprime mortgage and
credit crisis, has battered equity markets this year.
The U.S. S&P 500 index <.SPX>, for example, ended the first
half of the year down nearly 13 percent while the pan-European
FTSEurofirst 300 <> lost 20 percent and Japan's Nikkei
<> was down 18 percent.
STOCK WOES
The second half of the year started with no respite for
equity investors.
The FTSEurofirst was down 1.2 percent, weighed by inflation
worries and banking woes.
"There are no reasons to own shares at the moment," said
asset manager Stefan de Schutter at Alpha Trading in Frankfurt.
"Oil is still very high and the banking crisis is continuing."
Earlier, Japan's Nikkei dipped just 0.1 percent, but set its
longest losing streak in nearly four years.
The market initially got a boost from the Bank of Japan's
tankan survey that showed business sentiment had worsened less
than expected in the past three months. []
But the Nikkei started flirting with negative territory as
investors had a second look at the data, which confirmed a weak
outlook for the economy, market players said.
"It (the tankan) didn't provide any positive news, though
some figures might have been better than expected. It's
reaffirming the softness investors see in the economic outlook,"
said Akihito Yamanoi, general manager of the equity investment
department at AIG Global Investment Corp (Japan).
The Nikkei fell 18.18 points to 13,463.20, down for a ninth
straight day. The broader Topix <> was flat, down 0.03 of a
point at 1,320.07.
DOLLAR WEAK, BONDS MIXED
The dollar eased a third of a percent against the yen <JPY=>
to 105.75 yen, a factor in the Nikkei's slide because of the
effect on importers.
It was flat to weaker against the euro <EUR=> at $1.5763.
French President Nicolas Sarkozy said overnight that the
euro was 30 percent overvalued and that rises in interest rates
would have limited impact on inflation as it would make no
difference to the price of crude.
Yields on two-year euro zone government bonds were up i
basis point at 4.620 percent <EU2YT=RR> while the 10-year Bund
was yielding 4.603 percent <EU10YT=RR>, 2.5 basis points less
than in late Monday trade.
(Editing by Mike Peacock)
