By Jeremy Gaunt, European Investment Correspondent
LONDON, July 9 (Reuters) - Oil prices rose more than $1.50 a
barrel on Wednesday after Iran tested long- and medium-range
missiles, but crude remained far from its recent record highs,
boosting global equities.
Iran's test-firing of missiles, including one which it has
previously said could reach Israel and U.S. bases in the region
according to state media, weighed on the dollar, raising the
heat in a region already beset by tension over Tehran's nuclear
programme.
The rise in oil followed a $5 fall on Tuesday that lifted
investor spirits and helped trigger a rally on Wall Street
overnight.
U.S. light crude <CLc1> was up about $1.50 on the day, but
its price of just over $137.50 a barrel was a far cry from last
Thursday's record high of $145.85.
As a result, equities rallied, boosted also by
stronger-than-expected results posted overnight by U.S.
aluminium producer Alcoa <AA.N>.
The FTSEurofirst 300 <> index of top European shares
was up 1.0 percent and Japan's Nikkei average <> earlier
closed up 0.2 percent.
U.S. Federal Reserve Chairman Ben Bernanke also lifted
sentiment when he said on Tuesday that the U.S. central bank may
keep an emergency lending facility for big Wall Street firms
open longer than it initially intended.
Stocks have been battered in recent weeks by rising oil
prices and the accompanying worry about inflation.
"It's been a fairly oversold situation, and I wouldn't rule
out a relief rally at this point," said Franz Wenzel, strategist
at AXA Investment Managers, in Paris.
DOLLAR STALLS, BONDS SLIP
The dollar trod water while Iran's missile tests gave
safe-haven currencies like the Swiss franc <CHF=> a boost.
"We saw at least a marginal pick up in risk aversion
overnight and that led the dollar to reverse some of the gains
we saw yesterday," said Adam Cole, global head of FX currency
strategy at Royal Bank of Canada in London.
The dollar index, which tracks the dollar against a basket
of six major currencies, was flat.
Against the Swiss franc, the dollar fell 0.1 percent to
1.0330 francs and versus the Japanese unit, it was little
changed at 107.5 yen <JPY=>.
The euro gained 0.1 percent to $1.5681 <EUR=>.
Euro zone government bond prices slipped, lifting their
yields, after European Central Bank President Jean-Claude
Trichet said the bank would closely monitor all price
developments.
Trichet said the ECB's 25 basis point rate rise to 4.25
percent last week underlined the governing council's
determination to prevent second round effects of inflation.
Two-year cash yields were 6 basis points up at 4.46 percent
<EU2YT=RR> while 10-year paper was yielding 4.44 percent, 3
basis points higher.
(Editing by Mike Peacock)
