(Updates, adds Wall Street outlook)
By Jeremy Gaunt, European Investment Correspondent
LONDON, May 6 (Reuters) - The price of oil shot to a new
record just shy of a heady $121 a barrel on Tuesday, lifting
gold prices and weighing on stocks as investors focused on the
state of the U.S. economy and European interest rates.
Wall Street looked set for a poor start while the dollar was
steady to weaker against major currencies.
Crude oil <CLc1> hit $120.93 a barrel after surging more
than $4 to a then-new record of $120.36 on Monday, primarily
because of supply concerns in Iran and Nigeria.
It later fell back to around $119.86.
Iran said on Monday it would not consider any incentive
offered by world powers that would constrain its right to
nuclear technology, and there is growing violence in Nigeria.
They are the world's fourth and eighth largest oil
producers, respectively.
"We're seeing large oil-producing countries coming up as a
question mark," said Mark Pervan, a senior commodities analyst
at the Australian & New Zealand Bank.
The relentless surge in prices of commodities -- not just
oil but metals and food such as rice as well -- is a key concern
for central banks.
With questions about the U.S. economy and a possible spread
of its slowdown to Europe and elsewhere hanging over investors,
stocks fell.
European equities <FTEU3.> were down 0.8 percent as
weakening banks -- after UBS <UBSN.VX> unveiled big job cuts and
prepared to sell its $15 billion subprime mortgage portfolio --
-- eclipsed gains in the mining sector.
Japan's exchange was closed for a holiday.
The rising price of oil is likely to weigh on interest rate
decision later this week. The European Central Bank and Bank of
England both meet on Thursday.
"We expect the BoE and ECB to keep policy rates unchanged at
5.0 percent and 4.0 percent, respectively, as both central banks
concentrate on upside inflation risks in their economies,"
Lloyds TSB said in a note.
GOLD RISES
Gold <XAU=> extended gains, adding to a rise of nearly 2
percent in New York on Monday, helped by bargain hunting and
higher oil prices, which enhanced the metal's appeal as a hedge
against inflation.
Gold was up 0.3 percent at $875.20 an ounce. It hit a
four-month low of $845 on Friday.
Against a basket of six major currencies <.DXY>, the dollar
was flat.
The euro <EUR=> bought $1.5502, up less than 0.1 percent.
The dollar traded around 104.83 yen <JPY=> after it failed to
sustain a high of 105.92 on Monday.
Euro zone government bonds were flat to higher. The 10-year
yield <EU10YT=RR> was down 2 basis points at 4.143 percent while
the two year <EU2YT=RR> was flat at 3.809 percent.
