* Oil hits 2-1/2 year high, pulls back on Gaddafi rumor
* Gold hits record peak, silver at 31-year high on Libya
* U.S., European stocks fall on rising oil prices
(Updates with European markets close, Treasuries prices up)
By Walter Brandimarte
NEW YORK, March 7 (Reuters) - Oil prices jumped to a
2-1/2-year peak and gold hit an all-time high on Monday as
investors worried that widening unrest in Libya could spread to
other oil-producing nations in the Middle East.
Oil prices edged off early peaks on talk that Libyan leader
Muammar Gaddafi was trying to negotiate an exit from Libya an
on profit-taking. But Brent crude prices remained higher, at
around $116 per barrel, and U.S. crude prices were up more than
1 percent around $105 a barrel.
Fears that higher oil prices could curb the economic
recovery drove down equities in both Europe and the United
States, with technology shares on Wall Street also hit by a
downgrade on the semiconductor industry by Wells Fargo.
The euro was little changed against the dollar as
expectations faded of a euro zone interest rate hike next month
and on resurging debt concerns triggered by a Moody's downgrade
of Greece.
Brent crude oil futures <LCOc1> had jumped to as high as
$118.50 per barrel, their highest level since September 2008,
as Gaddafi's counter-offensive against rebels deepened concerns
that Africa's largest holder of oil reserves is headed for
civil war.
Prices of Brent were still 0.36 percent higher at $116.41,
with rumors that the Libyan leader was trying to secure a safe
exit from the country merely curbing initial gains.
"The major risk remains the prospect of the political
unrest spreading to the Gulf-producing region," said Caroline
Bain, economist at the Economist Intelligence Unit. "However,
even if there is civil unrest in Saudi Arabia, it is not a
given that oil production will be affected."
U.S. crude futures <CLc1> were up 85 cents higher at
$105.27 a barrel, off an intraday high of $106.95.
The prospects of further unrest in oil-rich Middle Eastern
countries drove investors to seek safe-haven assets. Gold spot
prices <XAU=> hit a record high of $1,444.40 an ounce while
silver <XAG=> rose as high as $36.52 an ounce, its highest
since early 1980.
"If we do see tension escalating further, then we could
witness a new high in gold," said Ong Yi Ling, investment
analyst at Phillip Futures in Singapore.
U.S. Treasury debt prices also rose on a safe-haven bid as
stocks fell.
The Dow Jones industrial average <> lost 57.94 points,
or 0.48 percent, to 12,111.94, while the Standard & Poor's 500
Index <.SPX> declined 9.46 points, or 0.72 percent, to
1,311.69. The Nasdaq Composite Index <> fell 42.34 points,
or 1.52 percent, to 2,742.33.
The semiconductor index <.SOX> shed 3.2 percent after Wells
Fargo downgraded the chip industry to "market weight" from
"overweight," saying the sector will grow moderately in 2011
compared with the past two years. []
In Europe, the FTSEurofirst 300 index <> of top
shares closed 0.41 percent lower.
"There are still problems in Libya and there are concerns
the oil price might curb economic recovery, " said Heino
Ruland, strategist at Ruland Research in Frankfurt. "I think
investors will continue to reduce exposure to their risk
profile."
PORTUGUESE YIELDS AT RECORD HIGH
Refinancing costs paid by peripheral euro-zone countries
were on the rise after Moody's slashed its rating on Greece by
three notches, signaling more downgrades in the near future.
[]
Portuguese 10-year yields <PT10YT=TWEB> rose to a euro
lifetime high of 7.65 percent, also pushed higher by a
government debt sale later this week.
U.S. Treasuries prices rose in the afternoon as falling
stock prices revived their safe-haven appeal. Prices had been
pressured earlier by a $66 billion supply of new U.S. debt
scheduled for later this week.
Benchmark 10-year U.S. Treasury notes <US10YT=RR> were up
4/32 in price, with the yield at 3.4788 percent.
The euro <EUR=EBS> was little changed at $1.3972, falling
from an earlier four-month high of $1.4036 on electronic
trading platform EBS.
The European single currency had been strengthening since
ECB President Jean-Claude Trichet surprised investors last week
by saying that euro-zone interest rates may rise as early as
next month.
(Additional reporting by Rodrigo Campos, Chris Reese, Nick
Olivari; Editing by Leslie Adler)
