* World stocks hit 1-1/2 month low after oil's surge and
weak U.S. jobs data last week
* Euro hits six-week high vs dollar, long-dated euro zone
government yields fall sharply as they extend last week's
dramatic moves after ECB Trichet's signal on higher rates
* Oil eases, but within $1 of last week's record $139.12 a
barrel
By Natsuko Waki
LONDON, June 9 (Reuters) - Stocks hit 1-1/2 month lows on
Monday after last week's surge in oil prices to record highs and
weak U.S. jobs data emphasised the fact the global the economy
is facing a damaging mix of rising prices and slowing growth.
The euro and euro zone government bonds extended last week's
dramatic repricing of interest rate expectations, with the
region's long-dated yields falling sharply on expectations the
European Central Bank's strong anti-inflation stance would tame
prices in the long term.
U.S. crude oil jumped nearly 9 percent to a record $139.12 a
barrel on Friday, making its biggest one-day gain ever as the
dollar tumbled and tensions escalated between Israel and Iran.
This, coupled with data showing the biggest jump in the U.S.
unemployment rate in 22 years, unleashed a wave of selling on
Wall Street which followed in Asian and European bourses.
"We have a strong euro, and a weak dollar, higher oil
prices, a very sharp dip in the global risk appetite," said
Niels Christensen, FX strategist at Nordea in Copenhagen.
"The negative correlation between oil and the dollar is a
key issue at the moment. Slowing rate hike expectations in the
U.S. and strong expectations in the euro zone, that's also a key
feature."
The FTSEurofirst 300 index <> fell as much as 0.7
percent while MSCI main world equity index <.MIWD00000PUS>
dropped 0.4 percent.
Banks were the top losers in Europe <.SX7P> after UBS
<UBSN.VX> fell up to 9 percent after a Swiss newspaper reported
the bank, Europe's hardest-hit victim of the credit crisis, will
make a loss of up to 4 billion Swiss francs ($3.93 billion) in
the second quarter.
Emerging sovereign spreads <11EMJ> widened 2 basis points
while emerging stocks <.MSCIEF> were down more than 1 percent.
FX/BONDS WHIPSAW
The recent dramatic moves in euro zone fixed income and
currency markets started last week when ECB President
Jean-Claude Trichet said the central bank could raise interest
rates in July.
Just two days before Trichet's comments, Federal Reserve
chairman Ben Bernanke broke tradition by warning the
inflationary impact from a weak dollar.
"While the commentary from central banks over the course of
the past week, with the strong emphasis on fighting inflation,
may look as if a co-ordinated approach is being taken, the
policies being implemented have contradictory consequences, with
potentially negative implications for asset markets and the
credibility of policymakers," BNP Paribas said in a note.
Two-year bond yields <EU2YT=RR> were 3.4 bps higher at 4.686
percent, while 10-year yields <EU10YT=RR> were 12.2 bps lower at
4.301 percent.
The yield curve inverted further to as much as 42 bps, with
short-dated yields above those on longer-term paper. That is the
deepest inversion since 1999 and continues the rapid flattening
seen last week.
The euro hit a six-week high of $1.5845 <EUR=> on
expectations of a yield-enhancing rate hike next month.
U.S. light crude <CLc1> fell 0.25 percent to $138.19 a
barrel, while gold <XAU=> hit a 2-week high of $904.10 an ounce.
(Additional reporting by Toni Vorobyova)
