(Adds close of U.S. markets)
* 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
* U.S., European stocks little changed as oil stocks rise
By Herbert Lash
NEW YORK, June 23 (Reuters) - Oil rose on Monday after a
widely anticipated Saudi Arabian energy conference over the
weekend failed to bring optimism to revive recently battered
global equity markets gripped by fears of inflation and slow
growth.
The dollar rose against the euro as the high energy costs
took a toll on German business sentiment and manufacturing and
service sectors contracted in the euro zone, denting the case
for higher interest in the monetary bloc.
The Federal Reserve meeting of policy-makers this week is
likely to bring stern talk about the risks of rising inflation
and a break in the interest rate cutting that started last
year.
U.S. Treasury debt prices were mixed 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 the Fed's two-day meeting that begins Tuesday.
U.S. and European stocks closed little changed as
energy-related stocks rose on rising crude prices and off set
fear of more trouble in the financial sector. Exxon Mobil
<XOM.N> and Chevron <CVX.N> were the biggest contributors to
the blue-chip Dow.
The blue-chip Dow and broad market S&P 500 were little
changed. The Dow Jones industrial average <> closed off
0.33 points, or breakeven, at 11,842.36. The Standard & Poor's
500 Index <.SPX> rose 0.08 points, or 0.01 percent, at
1,318.01. The Nasdaq Composite Index <> fell 20.35 points,
or 0.85 percent, at 2,385.74.
The KBW index <.BKX> of large U.S. banks fell 2.9 percent,
with all of its 24 components down, after Goldman Sachs'
recommendation to sell companies in the financial sector as
well as consumer discretionary stocks due to economic worries.
The Standard & Poor's retail index <.RLX> fell 2.5
percent.
An analyst at Banc of America Securities said it expects
Merrill Lynch <MER.N> and UBS AG <UBSN.VX> to write down $3.5
billion and $7 billion, respectively, in the second quarter.
Shares of Bank of America Corp <BAC.N> were off 4.5
percent, JPMorgan Chase & Co <JPM.N> slid 2.5 percent and
Citigroup <C.N> fell 4 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."
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 dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.63 percent at 73.437. Against the yen,
the dollar <JPY=> was up 0.48 percent at 107.81.
The euro <EUR=> fell 0.53 percent at $1.5521.
Oil rose as Nigerian supply disruptions and escalating
tensions between Israel and Iran outweighed Saudi Arabia's
pledge to raise output and keep markets well-supplied.
U.S. crude <CLc1> settled at $136.74 a barrel, up $1.38.
London Brent crude <LCOc1> was up $0.99 at $136.24 a barrel.
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. gold futures plunged as much as 3 percent in heavy
volume.
The August contract for gold <GCQ8> in New York settled
down $16.50 at $887.20 an ounce.
Selling by funds and the squaring of positions ahead of the
Fed's policy-setting this week pummeled gold futures, said
independent floor trader Jonathan Jossen.
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> fell
2/32 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)
