(Updates with Wall Street outlook, new prices)
By Natsuko Waki
LONDON, May 22 (Reuters) - Oil stormed to a new record above
$135 a barrel, knocking world stocks to a one-month low on
Thursday as concerns grew that rising raw material costs will
hit corporates and consumers at a time of an economic slowdown.
U.S. crude <CLc1> rose as high as $135.09 a barrel --
bringing its gains since early April to more than 30 percent --
following a sharp drop in U.S. oil stocks.
The surge in oil prices has set off concerns over a toxic
mix of rising prices and a deeper slowdown, which would tie the
hands of central banks keen to tackle the effect of the credit
crisis with easier monetary policy.
The Federal Reserve cut its 2008 growth forecast on
Wednesday but lifted its inflation forecast, suggesting it had
finished cutting interest rates after slashing them to 2 percent
last month.
"The current oil prices and the fact the Fed basically
admitted they are going to pause are not good news for stocks,"
said Franz Wenzel, strategist at AXA Investment Managers in
Paris.
The FTSEurofirst 300 index <> fell 0.2 percent while
MSCI world equity index <.MIWD00000PUS> dropped 0.15 percent. It
hit a 4-month high on Monday, rising close to the end-2007
level, which represents a break-even point for investors.
U.S. stock futures <SPc1> were pointing to a higher open on
Wall Street which would feature first-quarter results from Gap
<GPS.N>.
COMMODITY SUPERCYCLE
Gold <XAU=>, seen as a traditional inflation hedge, had
risen as high as $935.30 before yielding to pressures from
investors wishing to cash in on the rally.
"Day by day, commodities move higher and higher," Lehman
Brothers said in a note to clients.
"This macro Supercycle exhibits strong evidence of
persistent stamina... The asset allocation move, more like
growing stampede, into commodities by institutional and
individual investors has hardly concluded."
The dollar had fallen beyond $1.58 per euro <EUR=> for the
first time in a month before recovering, while it also hit a
one-month low against a basket of six major currencies <.DXY>.
Analysts are in two minds about the effect of high oil
prices on the dollar.
"It can lead to more diversification from central banks and
lead them to adjust their reserves out of dollars," said Chris
Turner, head of FX strategy at ING.
"But stagflation... can also turn the focus of the Fed to
deprioritise growth and focus on inflation, increasing the
prospects of higher rates and a dollar supportive yield curve."
UK and euro zone government bonds fell after data showing UK
retail sales fell less than expected in April pointed to a
resilience of British consumers.
The June Bund future <FGBLM8> was down 0.2 percent.
Emerging sovereign spreads <11EMJ> tightened 4 basis points
while emerging stocks <.MSCIEF> fell 0.7 percent, after setting
a 2008 high earlier this week.
(Additional reporting by Blaise Robinson and Simon Falush;
editing by Chris Pizzey)
