(Recasts with U.S. markets, changes byline; dateline previous
LONDON)
* Oil rises to over $137 despite Saudi pledge to pump more
* Euro slips on signs of Europe's rising economic weakness
* Bonds get boost in thin volume on safe-haven buying
* Oil lifts European stocks but U.S. shares little changed
By Herbert Lash
NEW YORK, June 23 (Reuters) - Oil bounced above $137 a
barrel on Monday and lifted energy shares but compounded fears
in the U.S. and European equity markets of slowing growth,
inflation and the credit-stressed financial sector.
The dollar moved higher ahead of a Federal Reserve meeting
this week that investors expect to involve stern talk about the
risks of rising inflation.
It gained against the euro as signs of growing economic
weakness in the euro zone. Data showed manufacturing and
service sectors contracted in May and German business sentiment
fell.
U.S. Treasury debt prices were steady to higher with some
safe-haven buying amid continued worries about the outlook for
financial services companies. Euro zone government bonds rose
on the soft euro zone economic data.
Trading volume was thin in both the U.S. stock and bond
markets before a two-day meeting of Fed policy-makers begins on
Tuesday.
U.S. and European stocks were little changed as
energy-related stocks rose on rising crude prices and off set
fear of more trouble in the financial sector. Exxon Mobil,
Chevron and ConocoPhillips led advancing shares on the Standard
& Poor's 500 Index <.SPX>, while insurance and banking shares
pulled down the broad benchmark index.
The KBW index <.BKX> of large U.S. banks fell 1.8 percent,
with all of its 24 components down, after Goldman Sachs'
recommendation to sell companies in the financial sector.
Shares of Bank of America Corp <BAC.N> were off more than
3percent, JPMorgan Chase & Co <JPM.N> slid almost 3 percent and
Citigroup <C.N> fell about 3.7 percent.
"Banks are weighing on the market. They are down 25-to-28
percent in the past 5-6 weeks," said Steve Goldman, market
strategist at Weeden & Co in Greenwich, Connecticut. "There are
further bank downgrades today from Goldman and that's making it
tougher for the market."
Before 1 p.m., the Dow Jones industrial average <> was
down 15.72 points, or 0.13 percent, at 11,826.97. The Standard
& Poor's 500 Index <.SPX> was down 1.89 points, or 0.14
percent, at 1,316.04. The Nasdaq Composite Index <> was
down 16.16 points, or 0.67 percent, at 2,389.93.
In Europe rising oil prices also bolstered energy shares
and pharma also rose, led by Shire's <SHP.L> gains on an upbeat
broker note.
But advances were nearly offset by ongoing worries over the
health of the banking sector. UBS <UBSN.VX> lost 4.4 percent
and Credit Agricole <CAGR.PA> shed 4.5 percent.
The FTSEurofirst 300 <> index of top European shares
closed 0.1 percent higher at 1,222.89 points. The index slipped
3.5 percent last week, dragged lower on the outlook for banks,
high oil prices and the spectre of interest rate hikes.
"Investors have overreacted. Stock prices are
unrealistically low after last week's sell-off sparked in part
by anticipations of interest rate hikes," said Francois
Chevallier, strategist at VP Finance in Paris.
"But macro news out of Europe is not good and signals a
strong slowdown that could force the ECB to postpone any rate
hikes," he said.
The euro <EUR=> fell 0.62 percent at $1.5508.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.71 percent at 73.501. Against the yen,
the dollar <JPY=> was up 0.51 percent at 107.85.
Tension between Israel and Iran spurred buying in crude
oil, although cease-fire by rebels halting attacks on
facilities in the Niger delta barely tempered the rise after
two new attacks over the past week knocked out another tranche
of Nigerian output. A weekend meeting of producers and
consumers sponsored by Saudi Arabia had little impact on
trading, although no bearish news arrived to push prices lower
from near-record levels.
U.S. light sweet crude oil <CLc1> rose $2.60 to $137.96.
Gold fell nearly 3 percent in Europe as the dollar firmed
against the euro and as sliding oil prices triggered a bout of
selling. Silver also fell in gold's wake, sliding almost 5
percent to a session low of $16.56 an ounce.
Trade in U.S. Treasuries was well below average as
investors stuck to the sidelines ahead of the Fed's two-day
policy meeting later this week.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
barely higher to yield 4.17 percent. The 30-year U.S. Treasury
bond <US30YT=RR> rose 11/32 to yield 4.71 percent.
"The Ifo index in Europe came in a bit below expectations
and it got people to question whether growth over there is
really that strong -- and that is helping Treasuries," said
Matthew Moore, economic strategist at Banc of America
Securities in New York.
The Fed is expected to hold rates at 2 percent when its
meeting concludes on Wednesday, but surging energy and food
price inflation has futures markets pricing in at least a pair
of rate hikes by year end.
Asian equities dropped to their lowest in three months amid
fears of more banking write-downs and most Asian bonds gained
as investors sought safety. An exception was India's 10-year
federal bond, whose yield rose to the highest in nearly seven
years due to inflation concerns.
Tokyo's Nikkei average fell 0.6 percent as Japanese firms'
sentiment on business conditions hit a four-year low.
(Reporting by Ellis Mnyandu, Steven C. Johnson, Chris Reese in
New York; Kirsten Donovan, Santoh Menon and Raissa Kasolowsky
in London and Blaise Robinson in Paris)
(Reporting by Herbert Lash. Editing by Richard Satran)
