(Recasts with U.S. markets, changes dateline; previous
LONDON)
* Oil jumps $6 a barrel, rekindling inflation jitters
* Financial stocks at 5-year lows on write-off speculation
* Debt prices rebound amid doubts on future rate hikes
By Herbert Lash
NEW YORK, June 11 (Reuters) - Oil prices jumped $6 a barrel
on Wednesday, rekindling inflation jitters and sending stock
prices sharply lower on both sides of the Atlantic.
Fear of more financial trouble also soured investor
sentiment as Lehman Brothers deteriorating share price again
pushed financial stocks lower. Rumors circulated of more
investment banks taking writedowns in the upcoming earnings
season.
The dollar fell against the euro as investors mulled the
outlook for interest rates hikes in the United States and
Europe after officials at the Federal Reserve and the European
Central Bank sounded the inflation alarm in recent days.
Both U.S. Treasuries and euro zone interest rate futures
rose after two days of dramatic falls on the view that selling
had gone too far in factoring in near-term rate hikes.
While investors reassessed the likelihood of an ECB rate
rise as early as July, oil prices swung wildly after weekly
U.S. inventory data showed a sharp fall in crude stocks.
The drop was four times the amount analysts' expected, with
crude stocks falling by 4.6 million barrels to 302 million
barrels last week, according to the Energy Information
Administration, a U.S. government agency.
Oil already was higher before the release of the U.S. data
due to strong growth in China's oil imports and a report from
oil major BP <BP.L>. BP said the world's proven oil reserves
were mostly unchanged last year, a further indication of
tightening global oil supplies.
"Inventories were taken down more sharply than expected,"
said Al Goldman, chief market strategist at Wachovia Securities
in St. Louis. "There have been some wild and wooly projections
on where oil is going and this kind of fed into it."
Other commodity prices also ignited inflation fears.
U.S. corn futures hit an all-time high on a lowered 2008
crop forecast, driving a rally that pulled up rice, soybeans
and wheat.
European and U.S. equity markets fell more than 1 percent,
with the Standard & Poor's 500 financial sector <.GSPF>
dropping to a five-year low, led by declines in investment bank
shares, on speculation Goldman Sachs <GS.N> will report a large
write-off next week when it releases quarterly results.
Fear of a big bank writeoff has been "the major driver," in
creating "increased fear of financials," said Rick Meckler,
president of investment firm LibertyView Capital Management in
Jersey City, New Jersey.
At midday, the Dow Jones industrial average <> was down
177.00 points, or 1.44 percent, at 12,112.76. The Standard &
Poor's 500 Index <.SPX> was down 17.28 points, or 1.27 percent,
at 1,341.16. The Nasdaq Composite Index <> was down 38.71
points, or 1.58 percent, at 2,410.23.
Lehman <LEH.N> shares fell 6.4 percent to $25.75. The
Financial Times said the bank had sought capital from Korean
financial institutions, and may enter a deal later this year.
European shares fell amid heightened financial sector
worries and fears of higher inflation and slower growth.
Royal Bank of Scotland <RBS.L> dropped 9 percent after the
UK bank said results would be held back by the impact of the
global credit crunch even as the performance and write-downs on
risky assets remained in line with its previous outlook.
The DJ Stoxx European bank index <.SX7P> fell 2.8 percent,
weighed by British mortgage bank HBOS <HBOS.L>, which fell 11.6
percent to below its planned rights issue price of 275 pence
per share.
The FTSEurofirst 300 <> index of top European shares
ended with a loss of 1.7 percent at 1,249.46 points, its lowest
close since March 20.
U.S. Treasury debt prices were higher. The benchmark
10-year U.S. Treasury note <US10YT=RR> rose 8/32 to yield 4.07
percent. The 30-year U.S. Treasury bond <US30YT=RR> rose 2/32
to yield at 4.69 percent.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.62 percent at 73.177, and against
the yen, the dollar <JPY=> fell 0.57 percent at 106.82.
The euro <EUR=> rose 0.69 percent at $1.5569.
U.S. light sweet crude oil <CLc1> rose $6.18 to $137.49.
U.S. gold futures rallied, driven up by bullish funds who
bought day-earlier dips as oil's advance resumed and by dollar
weakness, traders said.
Gold tends to move up on the inflationary implications of
rising crude oil prices, which climbed more than $3 to $135 a
barrel on signs of tightening global oil supplies.
Spot gold prices <XAU=> rose $15.50 to $881.85.
Asian stocks rebounded from a two-month low, with Japan's
Nikkei share average <> rising 1.2 percent and MSCI's
index of other Asia-Pacific shares <.MIAPJ0000PUS> gaining 0.3
percent after earlier touching April lows.
(Reporting by Ellis Mnyandu, Burton Frierson, Nick Olivari and
Carole Vaporean in New York and Ikuko Kao in London and Peter
Starck in Frankfurt)
(Reporting by Herbert Lash. Editing by Richard Satran)
