* Oil hits 2-1/2 year high on Libya violence
* Shares fall on price fears, earnings disappointments
* Euro zone manufacturing, Ifo upbeat
* Gold, euro zone bonds gain
By Jeremy Gaunt, European Investment Correspondent
LONDON, Feb 21 (Reuters) - Oil prices charged to a fresh
2-1/2 year high on Monday as traders eyed increasing violence in
major producer Libya, feeding fears about rising inflation and
unsettling other markets.
European equities fell on a combination of uncertainty over
the future of the oil price, increasing signs that higher
interest rates may be coming and more evidence of a surprisingly
poor earnings season.
Together, they overshadowed reports of solid economic
growth. U.S. markets were closed for a national holiday.
Gold powered to the highest levels in seven weeks, helped
along by both inflation fears and risk aversion.
Protests broke out in the Libyan capital Tripoli for the
first time following days of unrest in the city of Benghazi and
some army units defected to the opposition in what has become
one of the bloodiest revolts to convulse the Arab world.
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Financial markets are particularly sensitive to the violence
in Libya because it exports around 1.1 million barrels per day
of crude.
Brent oil <LCOc1> was up around $2 a barrel at $104.47
slightly below a new 2-1/2 year high hit earlier.
"There is uncertainty about supplies. Markets don't like
uncertainty," said Bernard McAlinden investment strategist at
NCB Stockbrokers.
Rising oil prices, meanwhile, feed into inflation, one of
the main current concerns of investors, who are otherwise in a
generally bullish mood on expectations that the global economic
recovery is now sustainable.
MSCI's all-country world stock index was down 0.1 percent
with the FTSEurofirst 300 <> declining nearly 0.7 percent.
The European weakness came despite euro zone manufacturing
data above consensus and the strongest Ifo sentiment data out of
Germany since reunification.
European stocks have been hit by mixed earnings. Thomson
Reuters Proprietary Research reported on Monday that the number
of European companies missing fourth quarter expectations is
outpacing those beating them.
The earnings growth rate, actual and predicted, for the
STOXX 600 is 18.9 percent, compared with a December estimate of
36.1 percent.
Shares in Carlsberg <CARLb.CO>, for example, fell on Monday
after the brewer posted a surprise fall in fourth-quarter
operating profit.
STRONG EURO
The euro slipped, having earlier hit its highest level in
more than 10 days against a background of hawkish comments from
European Central Bank officials that added to expectations a
rise in interest rates is on the way this year. []
The common currency was trading at $1.3681 <EUR=>, down
around 0.1 percent on the day. It rose to $1.3727 earlier in the
session, the highest since Feb. 10, extending a rise on Friday
that was also related to comments from an ECB Executive Board
member.
With an upcoming Irish election on Friday likely to see a
party which is openly calling for a renegotiation of its EU
bailout agreement come to power, strategists say there is a risk
that the euro could come under pressure.
Euro zone policymakers are also struggling toward a more
comprehensive package that they hope can put an end to debt
troubles.
"With neither the core nor the periphery signalling
willingness to find a compromise on the issues for now, the
chances are that potential political impasses could erode euro
sentiment going forward," said Valentin Marinov, strategist at
Citi FX.
Core euro zone bond yields were lower as investors bought
safer assets in the face of the Middle East and North Africa
events.
(Additional reporting by Harpreet Bahl and Anirban Nag; Editing
by Toby Chopra)
