(Updates, adds Wall Street outlook)
* Oil rises more than $1, lifting energy stocks
* Wall Street set for positive start
* Euro hit by poor economic data
* Euro zone government bond yields fall
By Jeremy Gaunt, European Investment Correspondent
LONDON, June 23 (Reuters) - Oil rose more than $1 a barrel
on Middle East tension on Monday, boosting energy-related
equities while the euro was hit by a raft of data showing
increasing euro zone economic weakness.
Wall Street looked set for a positive start after near
2-percent losses on Friday. Equities in Japan fell to a near
1-month low.
Europe suffered from a wave of poor economic reports. Euro
zone services and manufacturing activity both contracted in
June, hit by slowing demand and rising energy costs, while price
pressures surged, RBS/Markit indexes showed.
Similar data also showed French growth in both manufacturing
and services contracting and German growth in the sectors
slowing.
German corporate sentiment weakened significantly in June,
according to the Munich-based Ifo economic research institute.
The reports, reflecting a long-held belief that Europe would
follow the U.S. economy in slowing down, were seen as putting
pressure on the European Central Bank, which, like others, is
trying to balance slowing economic activity with rising
inflationary pressures.
"The ECB's policy dilemma has increased," said Jacques
Cailloux, chief euro area economist at RBS, which sponsors the
data.
The reports weighed for a while on equities, but higher
global oil priced lifted energy stocks, supporting indexes.
The FTSEurofirst 300 <> index of top European shares
was up 0.2 percent.
"Markets are oversold after last week, and that in itself
should give us a few days of respite," said Mike Lenhoff, chief
strategist at Brewin Dolphin.
Earlier, Japan's Nikkei stock average <> slid 0.6
percent to a nearly one-month closing low. It lost 84.61 points
to 13,857.47, its lowest since May 28. The broader Topix <>
shed 0.7 percent to 1,347.93.
OIL RISES, EURO FALLS
Escalating tension between Israel and Iran stoked supply
concerns and traders doubted whether top exporter Saudi Arabia's
promise to pump more oil, if needed, would turn back the rally.
U.S. light crude for August delivery <CLc1> was up more than
$1.15 a barrel at $136.53.
Iran's defence minister was quoted as saying on Sunday that
his country would give a "devastating" response to any attack.
On Friday, the New York Times quoted U.S. officials as saying
Israel had carried out a large military exercise, apparently a
rehearsal for a potential bombing of Iran's nuclear facilities.
This mood overwhelmed confirmation from Saudi Arabia that it
would lift production in July, a move that briefly weakened the
oil price.
On foreign exchanges, meanwhile, the euro was hit by the
poor data and the dollar benefited as some investors bet on a
hawkish message from the Federal Reserve later in the week.
"The data was quite weak this morning in the euro zone and
so we have a slight bear bias on the euro today," said Carole
Laulhere, currency strategist at Societe Generale.
"At the same time the market is waiting for the (Federal
Reserve) on Wednesday and is just judging whether the Fed will
tighten soon on inflation."
The euro was down 0.6 percent at $1.5519 <EUR=> while the
dollar index <.DXY> against major currencies rose 0.7 percent.
The euro fell 0.2 percent to 167.11 yen <EURJPY=>.
Euro zone government bond prices firmed, sending yields
lower. The interest rate-sensitive two-year Schatz yield
<EU2YT=RR> was down 4 basis points at 4.562 percent and the
10-year Bund yield <EU10YT=RR> was down 3 basis points at 4.597
percent.
(Editing by Gerrard Raven)
