Libyan Turmoil Weighs on Stocks as Oil Surges

LONDON (AP) — Mounting concerns over Libya's violent crisis weighed on stocks Tuesday and sent oil prices surging, while the earthquake in the New Zealand city of Christchurch pushed the country's currency sharply lower.

With deep rifts opening up in Moammar Gadhafi's regime, air force pilots defecting and a bloody crackdown in the capital of Tripoli, investors are fretting over how the crisis will end and what the impact on the North African country's oil production will be.

Libya is the world's 18th largest oil producer, pumping out around 1.8 million barrels a day, or a little under 2 percent of global daily output. The OPEC country also sits atop the biggest oil reserves in the whole of Africa.

With so much uncertainty surrounding a large chunk of the world's daily oil production, market prices surged. Benchmark crude for March delivery was up $4.80 a barrel, or 5.6 percent, at $92.55 a barrel in electronic trading on the New York Mercantile Exchange. Earlier, it had it had been even higher above $94 a barrel.

Rising crude prices are a particular worry for investors as they reinforce fears of inflation and raw materials costs. They also stoke worries of a big drop in global demand levels, as experienced in previous oil price shocks in 1973-4, 1979 and 2008.

"Until uncertainty in the Middle East fades, the oil price is unlikely to decline, with the concomitant threat to inflation, and margins," said Derek Mitchell, a fund manager at Royal London Asset Management.

Those concerns have clearly weighed on stocks, too, though a better than expected performance on Wall Street after the long weekend helped European shares claw back a chunk of their earlier losses.

The FTSE 100 index of leading British shares closed down 18.04 points, 0.3 percent at 5,996.76 while the CAC-40 in France dropped 47.14, or 1.2 percent, at 40.50.27. Germany's DAX ended 3.46 points lower at 7,318.35.

Wall Street's losses were less than futures markets were predicting following the three-day weekend, the losses cushioned by a survey showing U.S. consumer confidence running at a three-year high. The Conference Board reported that its main consumer confidence index surged 5.6 points in February to 70.4, its highest level since early 2008.

By midday New York time, the Dow Jones industrial average was down 0.8 percent at 12,291 while the broader Standard & Poor's 500 index fell 1.2 percent to 1,327.

In the currency markets, the euro was up 0.1 percent on the day at $1.3654 while the dollar fell 0.1 percent to 82.96 yen.

An announcement from Moody's Investor Services that it was putting Japan's credit rating on watch for a possible downgrade had little market impact as the agency is merely lagging its rival Standard & Poor's, which earlier this year did actually downgrade its rating on Japan by one notch below Moody's Aa2 rating.

"The impact of developments in the Africa and Middle East on the yen have far outweighed any impact from Moody's announcement overnight to place Japan's credit rating on negative watch," said Lee Hardman, currency economist at the Bank of Toky0-Mitsubishi UFJ.

Even though Japan has massive public debts, it is widely considered to be one of the safest places for investors to park their cash in troubled times.

A powerful earthquake in the New Zealand city of Christchurch also rattled markets in the region. The quake occurred in the middle of the workday, toppled tall buildings and churches, crushed buses and killed at least 65 people in one of the country's worst natural disasters.

Following the quake, the New Zealand dollar slid 2 percent against the dollar while the country's benchmark stock index fell 0.7 percent to 3,358.71.

Elsewhere in Asia, the Nikkei 225 stock average shed 1.8 percent to close at 10,664.70. Hong Kong's Hang Seng lost 2.1 percent to 22,990.81 and South Korea's Kospi dropped 1.8 percent to 1,969.92.

Mainland China shares saw their biggest loss in over a month — the benchmark Shanghai Composite Index dived 2.6 percent to 2,855.52 while the Shenzhen Composite Index skidded 2.7 percent to 1262.82.

Comments by China's central bank governor, Zhou Xiaochuan, expressing Beijing's determination to rein in inflation renewed worries over the likelihood of further moves by the government to cool price increases.

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Pamela Sampson in Bangkok contributed to this report.