Oil hits two-year high, dollar falls on war fears

Oil hits two-year high, dollar falls on war fears

Nigel Stephenson
Reuters
London

Oil prices hit fresh two-year highs, gold kept its luster and
the dollar fell on Monday after the U.S. sent more forces to the
Gulf for a possible strike against Iraq, ratcheting up fears of
war.

Stepping up pressure on Baghdad, the U.S. dispatched more
troops, aircraft and ships to the Gulf as United Nations weapons
inspectors searched for signs of banned Iraqi weapons of mass
destruction.

Oil prices rose around the globe on fears of supply disruption
from war in the Middle East and as Venezuelan production remained
choked by a strike.

"We're seeing a continuation of the bull run from the last two
weeks. The Venezuelan strike is still on, Saudi Arabia looks like
it will let the U.S. use its airbases for an attack on Iraq and
the market appears to be pricing any attack into March," said a
broker in New York.

Brent crude for February delivery was last at $30.57 a barrel,
up 41 cents. U.S. crude hit $33.17 a barrel, up 45 cents from
Friday's close and its highest since December 1, 2000. March
futures prices were also higher.

The killing of three American doctors in Yemen and the arrest
of a baggage handler at Paris's main airport after guns,
explosives and detonators were found in his car, also helped keep
the price of gold within sight of six-year highs.

Gold, a safe haven in troubled times, was fixed in the London
session at $348.50 an ounce, down from Friday's $349.30, which
was the highest since April 1997.

The dollar fell to a three-year low against the euro and a
six-week low against the yen, with anxieties over North Korea's
nuclear plans also weighing on the market.

"The market is still focused on the possibility of a strike
against Iraq in the early part of next year and also tension with
North Korea over its nuclear program," said Ryan Shea, senior
international economist at Bank One in London.

The dollar was last at 119.32 yen, down nearly half a yen in
early European trade and at $1.0424 to the euro, off an earlier
three-year high of $1.0445.

The tension over North Korea hit stocks in neighboring South
Korea. Tokyo stocks, which do not trade on Tuesday, finished 2002
at their lowest year-end level in 20 years.

The Nikkei closed down 1.55 percent on the day.

However, European shares rose slightly, helped by gains for
German automaker DaimlerChrysler and oil stocks.

DaimlerChrysler was supported by news over the weekend that
its Mercedes unit expects 2002 sales at least to have matched
those of last year.

The FTSE Eurotop 300 index of pan-European blue chips was up
just 0.4 percent while the narrower DJ Euro STOXX 50 was down
0.19 percent.

"You could argue that there can't be any more negative
surprises but if you go through the list of worries such as
economic growth, Iraq, oil prices and dollar-euro, there is
nothing to get enthused or bullish about in that list," said
Chris Johns, global strategist at ABN AMRO.

European stocks opened lower after U.S. stocks fell on Friday
but U.S. stock index futures were higher on Monday, indicating
Wall Street would open firmer.

Euro zone government bonds were well supported by the
geopolitical tensions and futures opened at contract highs.
However, traders said investors saw this as an opportunity to
take profits before the year-end.

The two-year German Schatz note yield, which moves in the
opposite direction to the price, was up 2.1 basis points at 2.741
percent after hitting 2.704 percent on Friday, its lowest since
May 1999.

The 10-year German Bund was yielding 4.213 percent, up 1.6
basis points.