* MSCI World Index set for worst first half on record
* Oil prices record biggest first-half gains in 9 years
* Euro/dollar rises sharply, heading for two-month high
* European stocks down 0.7 percent
By Mike Dolan
LONDON, June 30 (Reuters) - Crude oil prices spiralled
higher again on Monday toward record highs set late last week as
a weak on continuing tensions between Israel and Iran over
Tehran's nuclear programme and on further U.S. dollar weakness.
Oil's rise added to deep concerns about inflation and
economic slowdown plaguing world markets on the last day of
another torrid half-year -- set to be the worst six-month period
for global stock indices <.MIWD00000PUS> since 2002 and the
biggest first half loss on record for MSCI's world index.
And the relentless rise in oil prices, which recorded their
biggest first-half rise in 9 years, continued on Monday with
U.S. crude oil futures <CLc1> up more than two dollars to
$142.35 a barrel -- just shy of Friday's record of $142.99.
Middle East tensions simmered over the weekend. Iran's
foreign minister said on Sunday he did not believe Israel was in
a position to attack his country over its nuclear programme,
while an Iranian general announced plans to prepare 320,000
graves for enemy soldiers. []
"The U.S. dollar is down and there are many high-level
geopolitical news items, particularly in the Middle East, that
are pushing prices up," said Mark Pervan, a senior commodities
analyst at the Australian & New Zealand (ANZ) Bank in Melbourne.
"Oil is now a very jittery and news-sensitive market that is
running on rumours and concerns of future supply disruptions."
OIL/DOLLAR DANCE
Hurt by rising oil prices, the U.S. dollar fell to a
one-month low against a basket of major currencies.
The prospect of a European Central Bank interest rate rise
on Thursday has lifted the euro <EUR=> while weak equity markets
and U.S. consumer confidence at a 28-year low has scaled back
expectations for how soon the Federal Reserve could boost
interest rates stateside.
"The dollar has been pressured from a number of channels:
the relative pricing in central banks, the shift higher in the
oil price and the very sharp declines in stock markets," said
Teis Knuthsen, head of FX research at Danske Markets in
Copenhagen.
"But we are also concerned that the markets are pricing in
aggressively the risk of a series of rate hikes from the ECB ...
so potentially there is a chance that euro/dollar could falter
after the meeting."
The euro rose to a three-week high of $1.5817 <EUR=>, with
analysts saying that a break of technical resistance around the
$1.5850 mark could open the door for a move above April's record
highs around $1.6020.
The dollar also hit three week lows at 105.52 yen <JPY=>,
1.0161 Swiss francs <CHF=> and set a one-month trough of 72.128
versus a trade-weighted basket of six major currencies <.DXY>.
STOCKS UNDER MORE PRESSURE
European equities <> also lost early gains as the high
oil price fuelled concerns about consumer demand, inflation and
higher interest rates
"The oil price is hollowing out spending and causing
potential cost pressures...It's the talisman," said Philip
Isherwood, a strategist at Dresdner Kleinwort.
The FTSEurofirst 300, which was down 0.5 percent at 1185.79
points at 0830 GMT, is on track for a 20-percent loss in the
first half, in sharp contrast to an 8.2-percent gain in the
first half last year.
On the last day of the quarter, banks took about 2 points
from the index, with UBS <UBSN.VX>, BNP Paribas <BNPP.PA> and
Royal Bank of Scotland <RBS.L> all falling between 1.6 and 2.5
percent. Fortis <FOR.BR> fell 3.5 percent after Citigroup cut
its price target on the stock.
Earlier, MSCI's index of shares in the Asia-Pacific region
outside of Japan was down 0.04 percent <.MIAPJ0000PUS>, near a
three-month low plumbed on Friday.
The broader pan-Asia index <.MIAS00000PUS> was up 0.4
percent -- although down around 14 percent so far this year in
the largest first-half drop since 1992 when Japan was in a
recession.
Japan's Nikkei share average <> fell 0.5 percent on
Monday and chalked up its biggest first-half decline since 1995.
The index has fallen 12 percent since the start of the year.
Hong Kong's Hang Seng index <> was essentially flat,
with declines in some market heavyweights such as HSBC <HSBA.L>
<0005.HK> offsetting gains in resource-related shares.
(Reporting by Kevin Plumberg in Hong Kong, Toni Vorobyova and
Rebekah Curtis in London and Fayen Wong in Perth)
