* Oil falls on Chavez's Libya mediation proposal
* Stocks slightly higher, Wall Street set for gains
* ECB boost euro with inflation comments
By Jeremy Gaunt, European Investment Correspondent
LONDON, March 3 (Reuters) - A proposal by Venezuela
President Hugo Chavez to try to broker a peace deal in Libya
briefly pushed oil lower on Thursday, while recently risk-averse
stock markets put in gains.
Wall Street looked set to open higher and shares in Europe
and Asia gained as the oil price eased, and on upbeat U.S.
economic data overnight.
The euro currency and yields on euro zone government debt
shot higher, meanwhile, as European Central Bank President
Jean-Claude Trichet warned about inflation, raising the
likelihood of an interest rate rise later this year.
Brent crude oil <LCOc1> fell as low as $113.09 a barrel but
was later back up above $114 on reports of continued fighting in
Libya, including air strikes against rebel positions.
World stocks as measured by MSCI <.MIWD00000PUS> were up 0.5
percent.
The sharpest moves in oil were prompted by Chavez, a friend
of Libyan leader Muammar Gaddafi, suggesting a commission from
Latin America, Europe and the Middle East could be formed to try
to reach a negotiated outcome to the Libyan crisis, which has
driven oil to levels that may threaten the global recovery.
Arab League Secretary-General Amr Moussa said his group was
considering the proposal.
Some oil analysts suggested the proposal was a convenient
excuse for traders to adjust their positions.
"If it's coming out of Chavez, it might not have a great
degree of substance," said Tim Riddell, head of technical
analysis at ANZ in Singapore.
"The fact that the markets have been so volatile, and
without having concrete evidence of any material shift in the
unrest in the Arab world, suggests to me that we are at best
consolidating."
Financial markets have nonetheless become highly sensitive
to the turmoil in North Africa and the Middle East because of
the broad impact that a rising oil price has on everything from
corporate profits to consumer confidence and interest rate
projections.
STOCKS RISE
European shares rose on Thursday, buoyed by positive U.S.
economic news overnight and the falling oil price.
The FTSEurofirst 300 <> index of leading European
shares was up 0.9 percent, recovering the previous session's 0.7
percent fall.
Forecast-beating U.S. private sector jobs data and positive
comments from the Federal Reserve in its latest Beige Book
report overnight helped support equities in both the United
States and Asia.
"(There is) some hope that the global recovery is strong
enough to weather any shocks that may arise due to uncertainties
in the Middle East," said Zahid Mahmood, senior dealer at
Capital Spreads.
The euro rose as high as $1.3935, its highest since early
November, after Trichet said the outlook for prices was on the
upside. Investors had already pushed the euro up about 3 percent
from a low hit on Feb. 14.
Short-term euro zone government bond yields traded at their
highest since June 2009 on the prospect of an interest rate hike
as early as July.
A smooth bond auction by Spain, which remains under pressure
in financial markets on uncertainty over whether Europe can
solve its debt crisis, offered markets a small positive signal.
[]
(Additional reporting by Caroline Copley, Neal Armstrong and
Simon Falush; Editing by Catherine Evans)
