* Oil tops $71 after large drop in U.S. crude inventories
* Dollar recovers vs euro after Russia Treasury comment
* Bonds slide on global equity rally, economic outlook
* U.S. stocks slip on fears oil's climb may harm recovery
(Updates with U.S. markets activity; changes dateline,
previous LONDON)
By Herbert Lash
NEW YORK, June 10 (Reuters) - Oil topped $71 a barrel on
Wednesday for the first time in seven months after a surprise
drop in U.S. inventories last week, while the U.S. dollar
extended gains after profit-taking in the euro pushed it
higher.
Gains in the price of oil and other commodities helped to
underpin equity markets globally on hopes economic activity was
picking up, but U.S. stocks slid as investors worried higher
crude prices may fuel inflation and hamper a recovery.
U.S. and euro zone debt prices fell as the equity rally and
media reports that Chinese industrial production rose 8.9
percent in May -- far more than expected -- hurt demand for
safe-haven assets like debt and gold.
Russia pledged to cut the share of U.S. Treasuries in its
$400 billion reserves, although it said the move would be
gradual and only replace bonds as they expire. []
The comments by a senior Russian central bank official
weighed on bond prices and initially spurred the euro to a high
of $1.4145 before it fell on profit-taking.
European shares closed higher with banks taking the lead,
while surging crude prices boosted energy stocks and miners
rose as copper producer Antofagasta <ANTO.L> said expansion
plans were on track.
Copper prices in London rose to an eight-month high of
$5,264 a tonne before retreating, tracking dollar weakness.
But U.S. stocks bucked the global rise in equities as
investors worried the fast climb in oil prices may damp an
economic recovery. Shares of technology companies and big
manufacturers led the decline.
"It would seem that the oil prices may be too much of a
good thing. Oil prices have run so far, so fast, and that could
eventually curtail discretionary spending," Jack Ablin, chief
investment officer at Harris Private Bank in Chicago.
"It may pinch this recovery. Oil prices really do need to
retreat somewhat to (underpin) this recovery."
At 1 p.m., the Dow Jones industrial average <> was down
30.08 points, or 0.34 percent, at 8,732.98. The Standard &
Poor's 500 Index <.SPX> was down 4.70 points, or 0.50 percent,
at 937.73. The Nasdaq Composite Index <> was down 14.98
points, or 0.81 percent, at 1,845.15.
Economic news across the world was mixed. Two reports
raised prospects that the British economy could already be out
of recession, but manufacturing news from Japan and France
suggested the hard-hit sector is still suffering.
British industrial output rose 0.3 percent in April -- its
first increase since February 2008 -- official data showed, and
the UK economy grew during the month for the first time in just
under a year and continued to expand in May, a think tank said.
[][]
But French factory output fell 1.4 percent in April, more
than expected, highlighting the extent to which the global
recession has hit European industry after worse-than-expected
German output figures came out on Tuesday. []
In Japan core private-sector machinery orders slid an
unexpected 5.4 percent in April, a sign that firms are not
confident that a bounce in industrial output and exports will
be enough to resume capital investment. []
The pan-European FTSEurofirst 300 <> index closed up
1.2 percent at 879.98 points.
"It has been a good day, but I am not entirely sure if
there is entirely any real justification behind it," said Peter
Dixon, economist at Commerzbank.
"I think the market is going up in advance of a recovery. I
am not sure if this is sustainable," he said.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 21/32 in price, yielding 3.94 percent. The 2-year U.S.
Treasury note <US2YT=RR> fell 3/32 in price to yield 1.35
percent.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.42 percent at 80.176.
The euro <EUR=> was down 0.48 percent at $1.3997. Against
the yen, the dollar <JPY=> was up 0.73 percent at 98.11.
U.S. light sweet crude oil <CLc1> rose $1.20 to $71.21 a
barrel. Spot gold prices <XAU=> fell 95 cents to $952.80.
Asian shares rallied overnight as the reports of Chinese
industrial output raised optimism about the global economy.
The MSCI index of Asia Pacific stocks outside Japan
<.MIAPJ0000PUS> rose 2.7 percent, and Japan's Nikkei share
average <> climbed 2.1 percent.
(Reporting by Edward Krudy, Steven C. Johnson, Ellen Freilic
in New York; Joanne Frearson, George Matlock, David Sheppard
and Kylie MacLellan in London; writing by Herbert Lash)
