By Richard Satran
NEW YORK, Feb 11 (Reuters) - Credit worries hit the world's
largest insurer AIG International on Monday, lifting bond
prices and keeping a lid on stocks, which suffered their
biggest weekly pullback in five years last week.
Oil jumped after Venezuela threatened to cut off oil
shipments to the United States in a dispute with Exxon <XOM.N>
over payments for nationalized properties, and commodities in
general gained on a weakening dollar.
AIG International <AIG.N> said difficulties in valuing its
credit derivatives portfolio had triggered auditor questions
over its internal controls, sending its shares down 11 percent.
The worries over the blue-chip U.S. insurer pushed European
stocks lower as well, with financials such as Societe Generale
<SOGN.PA> and Fortis <FOR.AS> among the decliners.
Credit spreads widened and the AIG jitters triggered a
flight to safety that favored U.S. Treasury debt.
"There is an increasing realization that this is not (just)
a subprime (mortgage) issue; this is a credit bubble issue that
is hitting everywhere," said T.J. Marta, fixed income
strategist with Royal Bank of Canada Capital Markets in New
York.
"The concerns about AIG are affecting the financials and are
clearly having a negative effect on sentiment," said Michael
James, senior trader at regional investment bank Wedbush Morgan
in Los Angeles.
"You also had some comments from leaders of the G7 which
may have alarmed some."
Two-year U.S. Treasury note yields were trading not far
above their lowest levels since 2004 as investors sought
shelter in the highest-rated government securities. Benchmark
10-year Treasury note <US10YT=RR> prices, which move inversely
to yields, rose 11/32 for a yield of 3.61 percent, compared
with 3.65 percent late on Friday.
Worries about a deeper global economic slowdown had already
battered global equities earlier in the day and also hit the
dollar while commodity prices soared, adding inflation fears to
the mix.
U.S. crude <CLc1> surged to a one-month high above $94 a
barrel. Venezuelan President Hugo Chavez on Sunday threatened
to cut off supplies after an Exxon Mobil lawsuit froze $12
billion of Venezuelan assets to step up Exxon's push for
compensation from a nationalized oil project.
Copper prices touched their highest in more than three
months early in the day in London, underpinned by falling
inventories, analysts and traders said.
Benchmark U.S. wheat futures surged more than 5 percent to
a record $11.53 a bushel before dropping back a few cents.
Platinum <XPT=> hit a record high of $1,915 an ounce, bringing
its rise this year to 25 percent. Gold <XAU=> was steady, but
at $925 an ounce, near its all-time high of $936.50.
Finance leaders from the Group of Seven major economies
said over the weekend that the crumbling U.S. housing market
had hurt the world economy and that conditions may worsen as
debt-laden banks clamp down on credit.
The FTSEurofirst 300 index <> of top European shares
closed unofficially 0.8 percent lower at 1,291.96 points.
The Dow Jones industrial average <> was up 0.30 percent
at 12,219.96 in early afternoon after trading lower much of the
morning.
The euro <EUR=> was initially up 0.3 percent before
drifting to a lower close after comments from European Central
Bank policy-makers which dampened speculation about a rate cut.
Governing Council member Axel Weber told a German newspaper
that the ECB had not relaxed its view on inflation risks.
The dollar was down 0.6 percent at 106.72 yen <JPY=>.
The Japanese currency benefited from the risk-averse mood,
as worries about global growth and falling equity markets
prompted currency investors to exit risky trading bets funded
by cheap borrowing in the yen.
(Editing by Jonathan Oatis)
