Oil hits 2.5-year highs on Libya, stocks slip

HONG KONG | Sun Mar 6, 2011 8:15pm EST

HONG KONG (Reuters) - Crude oil prices rose to 2-1/2 year highs as worries about supply disruption increased due to deepening unrest in Libya, while Asian stocks slipped on Monday as concerns about the Middle East also weighed on equities.

U.S. crude hopped above the $105 a barrel line to reach its highest level since September 2008 as a counter-offensive by Libya's Muammar Gaddafi against rebels raised concerns that Africa's largest biggest holder of oil reserves is sliding into civil war.

Gold, often sought in times of geopolitical tensions, rose to near a lifetime high at $1,434.60 an ounce, while silver surged 3 percent to 31-year highs as investors piled into safe havens. It hit a record $1,440 last week.

A reasonably strong batch of U.S. data that showed the jobless rate falling to a near two-year low failed to boost sentiment, as investors remained firmly focused on the developments in the Middle East and the resulting longer-term impact on oil.

While a 22 percent rise in U.S. oil prices over the last two weeks has failed to have a significant impact on Asian stock markets so far, market players worried that further sharp price increases may stifle growth and fuel inflationary pressures.

"With strong, but not spectacular, U.S. payrolls we're seeing more signs of global recovery, but in the long term, high oil prices can threaten the earnings of Japanese companies and that's what investors are concentrating on now," said Mitsuo Shimizu, deputy general manager at Cosmo Securities in Tokyo.

Tokyo's Nikkei average .N225 fell more than 1 percent, while stocks elsewhere in Asia .MIAP00000PUS dipped 0.2 percent. South Korea's KOSPI .KS11 was a shade lower while Australia's S&P/ASX 200 index .AXJO was down nearly 1 percent.

Wall Street erased most of its weekly gains on Friday, with the S&P 500 Index .SPX falling by 0.74 percent, as fears of more geopolitical turmoil overshadowed positive U.S. data. The CBOE Volatility Index VIX .VIX, Wall Street's so-called fear gauge, rose 2.7 percent to 19.11. .N
In currency markets, the dollar struggled against a basket of major currencies .DXY after failing to get a big boost from the U.S. data, while the euro was supported on expectations of an interest rate hike next month from a hawkish European Central Bank.