* 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 oil Brent prices dipping)
By Walter Brandimarte
NEW YORK, March 7 (Reuters) - Global stocks fell on Monday
as fears that Libya's unrest could spread in the Middle East
drove prices of oil and gold higher, putting the global
economic recovery at risk.
Oil jumped to a 2-1/2-year peak while gold hit a record
high. Both retreated later on talk that Libyan leader Muammar
Gaddafi was trying to negotiate an exit from Libya.
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 slightly weaker 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 $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 0.15 percent lower in the afternoon,
at $115.82, as investors also took the opportunity to pocket
some profits. U.S. crude futures <CLc1>, however, remained up
0.6 percent at $105.27 a barrel, after reaching an intraday
high of $106.95.
"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."
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 <> was down 105.35
points, or 0.87 percent, at 12,064.53. The Standard & Poor's
500 Index <.SPX> fell 14.04 points, or 1.06 percent, at
1,307.11. The Nasdaq Composite Index <> declined 52.73
points, or 1.89 percent, at 2,731.94.
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
2/32 in price, with the yield at 3.4992 percent.
The euro <EUR=EBS> was 0.19 percent lower at $1.3956,
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 and Chizu Nomiyama)
