* Oil resumes climb after sliding the previous day
* Stocks, dollar under pressure on bank sector worries,
bonds rise on safety flows
(Updates prices)
By Ian Chua
LONDON, June 20 (Reuters) - Oil prices rebounded above $134
on Friday having suffered their biggest fall in three months
while worries about the financial sector knocked global stocks
and the dollar lower, setting the scene for a weak start on Wall
Street.
Safe-haven assets such as government debt benefited from
flight to safety flows, sending bond yields lower.
Citigroup's <C.N> warning it could take substantial
write-downs in the second quarter and Moody's move to strip the
insurance arms of bond insurers Ambac Financial Group <ABK.N>
and MBIA Inc <MBI.N> of their Aaa ratings had fuelled worries
about the financial sector. [] []
"A downgrade to the insurers leaves the financial sector
'holding the baby' of the consequential write-downs and it does
their balance sheets, which are already sorely impaired, no good
whatsoever," said Marc Ostwald, bond analyst at Insinger de
Beaufort in London.
"It always seems to be the case with the financial sector
where it never rains but pours."
U.S. crude <CLc1> jumped $2.49 to $134.42, recouping about
half of Thursday's near $5 fall -- the biggest drop since March
19 -- after China announced a surprise increase of about 18
percent in retail gasoline and diesel prices, effective Friday.
Markets are still grappling with the possible impact of the
Chinese move, which came just days before an emergency meeting
on Sunday in Saudi Arabia between consumers and producers to
discuss rising oil prices.
The firmer oil price gave energy stocks such as Total
<TOTF.PA> a small boost, but weakness in bank shares including
UBS <UBSN.VX> and Royal Bank of Scotland <RBS.L> dominated the
wider market.
The FTSEurofirst 300 <> index of top European shares
fell 1.3 percent, with Germany's DAX <> down 1.4 percent
and Britain's FTSE <> shedding about 1 percent.
U.S. stock futures <SPU8><DJU8><NDU8> all pointed to a lower
start for Wall Street.
Earlier, Japan's Nikkei <> dropped 1.3 percent, while
other Asian stock markets <.MIAPJ0000PUS> slid 0.8 percent to
one-week lows. MSCI world equity index <.MIWD00000PUS> lost 0.3
percent.
Indicating heightened risk aversion, the iTraxx Crossover
index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits,
widened about 5 basis points to 490 basis points.
DOLLAR EASES
The dollar plumbed a 1-1/2 week low against a basket of
major currencies as U.S. crude prices climbed and on worries
about the banking sector while the euro rose broadly on signs of
mounting inflation in Germany.
Given a dearth of U.S. economic data, oil prices will have a
significant sway over dollar sentiment, said FXCM currency
analyst John Rivera.
"If prices rise following yesterday's drop, the potential
impact on the world's largest consumer of fuel's economy will
support the current pessimistic outlook and weigh on the
dollar," Rivera said.
The dollar slid about 0.6 percent on the day against a
basket of six major currencies <.DXY>, reaching levels last seen
on June 10. The euro gained 0.7 percent to $1.5610 <EUR=> and
was up 0.2 percent against the Japanese currency at 167.74 yen
<EURJPY=R>.
Data earlier showed German producer price inflation
accelerated by more than expected in May to its highest level
since July 2006, in the latest sign of mounting price pressures
in Europe's largest economy. []
With stocks on the back foot, government bond prices rose
pushing their yields lower as investors sought the safety of
safe-haven government debt.
The 10-year Bund yield <EU10YT=RR> eased 4 basis points on
the day to 4.636 percent, while the benchmark 10-year yield for
U.S. Treasuries <US10YT=RR> slipped 5 basis points 4.20 percent.
Bond yields have risen sharply in the last few months on
inflation worries and expectations that central banks will have
to raise interest rates to fight growing price pressures.
